Cash flow forecasts
Cash flow
forecasts predict…
• Cash flow in
• Cash flow out
• Cash left
…for a given period (usually a year)
Benefits of
cash flow forecasting:
• Forewarns any cash flow
shortfalls or peaks
• Helps business owners
prepare for them
• Exposes debt collection
issues
Cash is…
... any liquid asset…
…that can be turned into cash to pay an
urgent debt
Cash flow forecasting
in 4 steps:
Cash flow forecasting in 4 steps:
1.
2.
3.
4.
Identify cash in
Identify cash out
Calculate net cash flow
Adjust bank balances
Step 1: Identify cash in
Cash in can be…
• Cash sales
• Interest on savings
• Debts repaid
• Cash from a loan
… plus other types of easily accessible income
Step 2: Identify cash out
Cash out can be…
• Purchases
• Utility bills
• Wages
… however, depreciation does not count even
though interest counts as a “cash in” source
Step 3: Calculate net cash flow
Subtract “cash out” from “cash in” to find net
cash flow
The equation is simple - the hard part is
accurately identifying the sources defining the
flow of cash
Step 4: Adjust bank balances
Add net cash flow to bank balance for the
beginning of the month to predict what’s
going to happen by the end of the month
Just be careful…
At the end of every month you can compare forecast
to reality
Just make sure you leave the correct closing bank
figure in your records…
If you don’t future forecasts will be inaccurate
Find out more with Business.govt.nz:
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Next steps:
• Cash flow forecasting
• Introduction to raising capital
• Can you afford to start a business
• Finding sources of capital
• SWOT analysis
• Assess if you are ready to start up