What is cash flow forecast?
Cash flow forecasting is a simple way of predicting where your cash flow will be down the track – without using a crystal ball. It is an estimate of the amount of money you expect to flow in and out of your business and usually covers the coming 12 months, but it can also cover shorter periods like a week or a month.
The main goal of a cash flow forecast is to make sure the business has enough cash to meet its obligations and avoid funding issues over the short to medium term. But it can also form part of a long term plan and cash flow budget. Effectively, cash flow forecasts are a way to ensure improved management of working capital.
Cash flow forecasts are used to:
- Predict a cash shortage/surplus
- Compare income and expenses for different periods
- Estimate the financial effects of particular events, such as adding a new employee
- Demonstrate to lenders the health of your business
How to calculate your cash flow forecast
A valuable planning tool for a business‘s financial management, cashflow forecasts will help you manage your cash flow because they are the key indicator of the future cash position of a business’s balance sheet.
It’s not difficult to do a cash flow forecast report. You just need to have access to your bank accounts, accounting spreadsheets or software, and invoicing.
Now, with today’s situation in mind let’s look at an analysis of cash flow forecasting for your business for the next quarter.
Free cash flow forecast template
- Quick and easy cash flow forecasting for immediate results
- Select from multiple payment types in drop-down menus
- Set up coloured alerts for when cash balances fall below a minimum threshold
- Get monthly insights on your incomings and outgoings with as much detail as you want
- Combine the results into a living business plan that changes as you grow
Questions to ask yourself when forecasting cashflow:
What is your business’s current cash situation?
Take your current cash situation as a starting point – how’s it looking?
What is your estimated income for next quarter?
Look at how much cash inflow you expect into your business during the next month. This includes revenue, sales made on credit, loans and more. What’s the figure?
What are your estimated expenses for next quarter?
Think about all the expenses you will pay next period – like wages, rent, supplies, vehicle expenses, stock, utilities, insurances etc. Have you got a figure?
What is the difference between income and expenses?
Cash Flow = Estimated Income – Estimated Expenses
Add cash flow to current cash situation.
After you calculate cash flow, you need to add it to your opening cash balance (from 1 above). This will also give you your closing balance. Your closing cash balance will carry over to act as your starting balance for the next period.
Take Control of Your Cash Flow Today
Create Your Cash Flow Forecast Step-by-step
Gather Financial Data
- Collect historical financial data to understand past performance.
- Identify revenue and expense patterns to inform future projections.
Estimate Future Cash Inflows
- Develop sales projections based on historical data and market trends.
- Include other income sources such as loans, investments, and other expected revenues.
Estimate Future Cash Outflows
- Calculate expected operating expenses, including salaries, rent, and utilities
- Plan for capital expenditures, such as equipment purchases and property improvements.
Prepare the Forecast
- Use templates or software to organize and structure your forecast.
- Create a comprehensive cash flow statement that outlines all projected inflows and outflows.
Review and Adjust
- Regularly review and update the forecast to reflect actual performance and changes in the business environment.
- Adjust the forecast as needed to account for new information and changing circumstances.
Benefits of cash flow projection
Enhances Financial Planning and Decision-Making
Helps in Identifying Potential Cash Shortages
Improves Investor Confidence and Stakeholder Communication
Facilitates Effective Cash Management
FAQs
Cash flow forecast FAQ
Cash flow forecasting is easy once you are familiar with the concepts. You simply need to know your current cash situation, your expected income and expenses, and you can work out an estimated cash flow forecast. Read the article above, then download our free Cash Flow Forecasting Template.
Cash flow forecasting is really just a prediction of the balance of your income and expenses at a point in the future. You need to know your current cash situation, then use expected income and expenses to determine the figure.
A cash flow forecast can give you an indication of the anticipated health of your business at a time in the future. It can help you prepare for a cash flow shortage in advance. You can use it to predict the financial effects of particular events, such as adding a new staff member. It’s also a fantastic way you can demonstrate to lenders your ability to repay a loan.
Does Your Cashflow Forecast Show A Gap?
Support your cashflow with a Prospa Small Business Loan solution
Small Business
Loan
Quick access to $5K – $150K to cover unexpected expenses or a one-off purchase.
- Fixed term up to 3 years with fixed rates
- Fast decision & funding possible in 24 hours
- No asset security required upfront to access Prospa funding up to $150K
- Minimum $6K monthly turnover and 12 months trading to apply
Business Loan
Plus
Larger loans above $150K and up to $500K to invest in your next business growth opportunity.
- Fixed term up to 5 years with fixed rates
- No credit checks to see if you are eligible
- Security may be required when accessing over $150K in Prospa funding
- Minimum $1M annual turnover and 3 years trading to apply
Line of Credit
Ongoing access to up to $500K to keep your business moving.
- Renewable 24 month term
- Fast decision and funding possible in 24 hours
- Only pay interest on what you use
- Access funds 24/7 with the Mobile App
- Minimum $6K monthly turnover and 12 months trading to apply
Why Prospa is today's way to borrow
We’re Australia’s #1 online lender to small business.
Talk to a business lending specialist
Talk to a business lending specialist
Talk to a business lending specialist
Talk to a business lending specialist
Talk to a business lending specialist
Customers making it happen with a Prospa loan
Read customer stories
Awards, thanks to your support
It's nice to know we're doing something right
| Year | Award | Category |
|---|---|---|
| 2024 | The Adviser Magazine's Product of Choice: Non-Banks Survey | Winner, Best short-term loan |
| 2024 | FINNIES Fintech Australia Awards | Finalist, Excellence in Business Lending |
| 2024 | The Adviser Magazine's Product of Choice: Non-Banks Survey | Winner, Best SME loans less than $250K |
| 2024 | Great Place to Work | Recognised as one of the Top 10 Best Workplaces in Technology |
| 2024 | Work180 | Recognised by WORK180 as one of Australia’s top 101 workplaces for women |
