A cashflow forecast is critical to businesses – even businesses that make profits can run out of cash.

To meet your fiduciary duties as an owner you must know that you are solvent and can meet your debts as and when they fall due.

This video explains why you need a cashflow forecast, sometimes described as a cashflow statement.

There is a cashflow template for you to use to develop a cashflow forecast for your business.

 

Cashflow is King

Cashflow is critical to businesses.  Even businesses that make profits can run out of cash if the pace of cash going out to suppliers is faster than the cash coming in from sales.

To meet your fiduciary duties as an owner you must know that you are solvent and can meet your debts as and when they fall due.

A cashflow statement allows you to:

  • Reduce worry by knowing where you stand
  • Identify the triggers to take action when you have a clear head
  • To be able to undertake a sensitivity analysis when making key decisions

Step 1: Click here to download the Cashflow template (no registration required)

Step 2: Review the example data so that you can see the way data is entered

Step 3: Download your data from Xero or your accounting system

Step 4: Populate the spreadsheet using your data.  Make sure you replace the data in the Cashflow template, however do not delete the formulas (shaded with green).

Step 5: Adjust your data to allow for likely timing of receipts and payments

Step 6: Note that for loans you will need to use a “-” prior to the number (per the example) eg -10000 to ensure the numbers add up correctly

Tips:

  • Don’t try to be too exact: this is not a set of accounts that have to balance exactly. It needs to provide an approximate guide
  • Keep your forecast updated and to hand so that you can ensure it is current
  • Your receipts and payments for products may not line up in the same month depending upon your payment arrangements with your supplier and how quickly your customers pay you
  • Note that gross cash profit is an approximation

If you need help with your business, including discovering ways you can improve your cashflow, please contact us.