Cashflow forecasts are an essential part of any growing business, but are also something many business owners overlook. Cashflow forecasts don’t need to be complex or take a long time to produce – use our free template to help build your forecast and make it as accurate and helpful as possible.
In this blog post, we’ll talk through the steps to create a forecast and provide an example for you to take away and use.
You may be asking yourself, ‘why would I produce a cashflow forecast?’
Using a cashflow forecast can help you consider and plan for many different scenarios that may crop up in your business such as:
• Can you afford to recruit a new member of staff?
• Could you expand your product or service line?
• Could you invest in a new piece of machinery?
• Are you at risk of running out of cash?
• Should you consider borrowing?
• Can you extract funds from your business?
None of the above questions can be answered easily or accurately without a detailed cashflow forecast. Any growing business will have to answer questions about cashflow, whether they are a small business with minimal cash reserves, are a well-funded company, or even a VC backed entity.
How to produce a cashflow forecast
We’ve created a step-by-step guide to producing a cashflow forecast for you to follow – by following this along with our template, you’ll be making better business decisions in no time.
Step one: Consider your sales forecast
This is possibly one of the most important elements of the cashflow forecast, as it will be essential to the accuracy of the forecast and one that can easily be overestimated. Ensure you are realistic with your forecast but also consider the following:
• Review last year's figures and identify any trends that may occur this year.
• Can you upsell to existing clients?
• Can you sell into new markets or territories?
• Ensure sales are recorded inclusive of VAT (if you are registered) and the VAT is accounted for separately as this is a more accurate reflection of the cash movement in your business.
Step two: Consider your costs
The next step is to consider the costs of running your business.
Firstly, think about cost of sales – if your business produces goods or services that have a direct cost to produce or deliver, then you should review this first. This can also be created as a formula that increases or decreases in line with the movement of sales.
Secondly, consider your expenses. These are often referred to as fixed costs, as they are not affected by the movement of sales and are largely incurred regardless of how well the business performs with sales. Examples of these would be rent, rates, salaries for indirect labour and accountancy fees. You’ll need to consider what is affordable here and also what is required in order to run the business.
Step three: Consider any capital contributions and ad hoc expenditure
Here, note down any capital expenditure you make in the business in things such as new machinery or office equipment. The forecast will help you make an informed decision on when to incur this spend.
Step four: Consider any tax payments
Depending on the size and structure of your business, you will have different tax liabilities at different times. Items to consider here are:
• Monthly national insurance and PAYE due to HMRC from your payroll
• Quarterly VAT payments due to HMRC
• Annual corporation tax bill
• Self-assessment tax (if self-employed) in both January and July
With all of these figures added, your forecast is complete and ready to be used! Be sure to continuously monitor the forecast to ensure it is as accurate as possible.
If you’re in need of more business advice, check out our contributions to Revolut’s Business 101 page: blog.revolut.com/tag/business-101/
We work with Revolut to save our clients time and money, making things simple for both employees and business owners. Find out more on how Revolut could benefit your business here: https://link.revolut.com/2yTS72IAP6