Cash flow



Cash flow

Part1

What is a Cash Flow Forecast?

The Cash Flow Forecast is the most important aspect of accounts preparation, be it Management Accounts & Cash Flow Forecast - the accounts prepared by a company for internal management use, or accounts prepared for a lender, such as a bank to evaluate how you will be able to repay the funding.

Where the The Balance Sheet and the The Profit & Loss Account are primarily prepared for your 'actual' year end figures for submission to Companies House, the Cash Flow Forecast needs to be, some say, pessimistic as to your sales figure and expenses.

Cash Flow Forecast Example

The example below evenly spreads out all costs. In reality, utilities, lease, etc are paid quarterly, some in advance, others in arrear. It is advisable to enter the proper amount in the month that the payment is due to ensure you are aware of the highs and lows of your cash requirements. However, the example below is a good tool for setting out your budget.

In most cases, a business should forecast for a 12 month period. However, we have cut our example down to 3 months…just so that you get the idea. In addition, we have simplified the content (listings on the left-hand-side) to make it easier to follow and understand.

All figures in £

Open

Jan

Feb

March

INCOME

Sales

3,000

3,000

3,500

Capital In

10,000

TOTAL INCOME

10,000

3,000

3,000

3,500

FINANCES / ASSETS

Loan Repayments

100

100

100

Interest Paid

10

10

10

TOTAL FINANCES / ASSETS

110

110

110

DIRECT COSTS

Materials

150

150

200

Direct Labour

300

300

350

TOTAL DIRECT COSTS

450

450

550

EXPENSES

Salary

1000

1000

1000

Office Rent

100

100

100

Telephone

100

Utilities

100

Insurance

100

TOTAL EXPENSES

1,200

1,200

1,200

OPENING BALANCE*

-

10,000

11,240

12,480

TOTAL INCOME

10,000

3,000

3,000

3,500

TOTAL OUTGOINGS

-

1,760

1,760

1,860

NET CASH FLOW*

10,000

1,240

1,240

1,640

ENDING BALANCE*

10,000

11,240

12,480

14,120

* Negative figures would be denoted by ( ) i.e. - £500 = (500)

The last five rows of the forecast are:

Opening Balance - This figure is the ending balance of the previous month

Total Income - This is the total income figure for the month (highlighted in blue).

Total Outgoings - This is the combined total of the outgoings (highlighted in yellow). In this case, we have three outgoing costs for each month (finance, direct costs and expenses).

Net Cash Flow - This is the difference between the total income and the total outgoings. It is worked out by subtracting the total outgoings from the total income.

Ending Balance - This is the ending balance at the end of the month. This figure is obtained by adding (or subtracting if it is a negative net cash flow) the net cash flow to the opening balance of the month.

How 'Credit' Will Affect the Cash Flow Forecast

If you offered, say, 1 month's credit to your customers, you would enter the sales figure in the month that you would be paid. For example, if a customer makes a purchase of £200 in January with one month's credit - you would include the figure in the February sales.

If you want to view a more detailed cash flow forecast, you can download our FREE spreadsheet (Excel) which you can edit and use in your business.

Forecast Figures vs Actual Figures

The following example is an effective method for recording forecast figures against actual cash. Most PC spreadsheet packages (like Excel) can be set up to your ...