Cash Flow Forecast

A cash flow forecast shows the critical whens of cash coming in and cash going out during a certain month. Preparing a monthly cash flow forecast provides you with the opportunity to show dollar figures, representing revenues and expenses, in the month the business expects to collect and spend the cash. A cash flow forecast does not show sales estimates or overhead expenses averaged across several months.

Used properly, this will provide you with the means to keep your business decision-making on track and your inventory purchasing in control. It will also serve as an early warning indicator when your expenditures are running out of line or your sales targets are not being met. As the manager of your cash, you will have enough time to devise remedies for anticipated temporary cash shortfalls and ample opportunity to arrange short term investments for the business' temporary cash flow surpluses.

The completed cash flow forecast will clearly show a bank loans officer (or yourself) what additional working capital, if any, the business may need, and will offer proof that there will be sufficient cash on hand to make the interest payments to support a revolving line of credit (to cover the shortfalls). If the performance projections are realistic, they will also provide support for the feasibility of a term loan for an equipment purchase or for a master marketing campaign.

Reliable cash flow projections can bring a sense of order and well-being to your business and more calm to your life. The most important tool owners/managers have available to control the financial aspects of their business is the cash flow worksheet.