Finance Tips Part 1 - Importance of Cash flow forecast

A business should avoid surprises especially the unpleasant ones.

One way to achieve this is to have a cash flow forecast for a minimum of six months. The forecast should be updated every month taking into account the latest information.

Cash flow forecast is a simple document which could be done on Excel and shows the future cash inflow and outflow of a business. The document will warn you in advance if the company is unable to pay the staff salaries or suppliers in the near future. Thus there will be no unpleasant surprises.

To prepare the cash flow forecast you first need the opening cash and bank balances. To this you will add the cash inflow which will include cash sales, collections from customers, loans and owners contributions. From this you will deduct the cash outflow including staff salaries, office rent, payment to suppliers, office expenses, fixed asset purchases and owners drawings. It is a good practice to show the actual for the current month in the forecast for comparison purposes.

Does your business have a cash flow forecast?