Cash flow is among the most critical factors in determining the success of your business.

That’s why forecasting your cash flow is an important process that will enable you to ensure you have enough liquidity to capitalise on opportunities and grow your business.

A cash flow template can be an essential tool for accurate and helpful cash flow projection.

Download our cash flow forecast template now.

Why You Need A Cash Flow Forecast

  • 46% of New Zealand small businesses listed cash flow problems as their most impactful issue.
  • Over 90% of business owners believe that had they increased cash flow they would have been able to generate more revenue in the last year.
  • 95% of small businesses in New Zealand experience cash flow problems in any given year, with the average business experiencing shortages for up to a third of the entire year.

Being able to produce an accurate cash flow forecast allows businesses to predict anticipated shortages and surpluses. Having this information is vital for planning and making data-driven, informed decisions around business finance, growth potential and even tax considerations.

Forecasting Financial Outcomes and Cash Flow

A cash flow template is a critical tool to forecast how potential changes to the capital flowing into and out of your business can affect ongoing operations.

For example, you might want to consider the costs of hiring a new staff member, purchase a new piece of machinery or place an order for a larger amount of stock ahead of a particular season of trade. Each of these considerations comes with an increase in expenditure. With a cash flow projection template, you can take the expense into account and determine the best path moving forwards accordingly.

By forecasting the financial outcomes of any particular decision, you can prepare for both the best and the worst case scenarios. The better you understand and, therefore, anticipate the impacts on your business’s cash flow, the better empowered you will be to act in the best interests of your business. With greater insights comes more confidence and ability in taking steps to grow your business.

Cash Flow Forecast Template

To help you create your cash flow forecast, we’ve broken down the process step by step.

Before you begin, it is important to home in on a specific period over which you will be forecasting. It is common for businesses to choose to create a monthly cash flow forecast, but you may want to adapt yours according to your needs.

If you’d like to use our Excel cash flow forecast template to help you get started, click here to download it today.

Step 1: Estimate Sales Cash Inflows

The first step in putting together a forecast is to prepare your anticipated sales income. This details how much income your business expects to receive from selling your goods or services over the preset period of time.

A good way to approach this would be to look at previous years’ sales figures and try to identify trends that will indicate future sales. Consider factors that may impact sales income, such as price changes or external market influences. For example, if your business operates in an industry that sees demand peak and trough in different seasons, you will need to factor this into your trade calculations and forecast sales income.

Bear in mind other factors or changes in your business that may impact cash flow as well. These can range from launching new products or service lines to the replacing of staff members. These factors can all affect the amount of income generated.

With a realistic sales forecast for the period, your next step is to determine when you expect payment to be received from your debtors. Again, you can use past data to answer this. Remember that sales revenue can only be accounted for as cash inflow when your business has actually received it and not simply when you issue an invoice.

Small businesses in New Zealand and beyond find that the late payment of invoices by their debtors to be a leading problem in consistent cash flow.

Source – Xero Small Business Insights

Did you know that 44 to 56% of invoices issued by New Zealand businesses are paid late according to the Ministry of Business, Innovation and Employment?

That’s where Invoice Finance, also called debtor finance, can be helpful. It assists businesses who struggle with extended payment schedules and late settlements in accessing a line of credit by leveraging their outstanding accounts.

Other Sources of Estimated Cash Inflows

It is important to note that sales revenue may not be the only source of earning for your business. Other anticipated income for the particular forecast period in question could include:

  • Tax refunds
  • Consumption tax rebates
  • Government grants
  • Royalties
  • Franchise fees
  • Insurance claim payments

Step 2: Prepare a List of Estimated Cash Outflows

Now that you have determined the cash coming into your business, it is time to estimate cash outflows. In other words, what are your business’s day-to-day expenses?

Some payment dates of expenses are more straightforward than others to determine, but it is important that you are as accurate as possible.

Here’s a general list of estimated expenses that you may need to consider:

  • Payments to subcontractors
  • Payments to suppliers
  • Staff wages
  • Direct debits
  • Property rent/mortgage
  • Business rates/taxes

With these daily operational expenses in mind, you are ready to consider other costs your business may encounter.

Other Sources of Estimated Cash Outflows

Business expenses can vary widely depending on your industry and product/service line.

Consider the following as potential other sources of estimated cash outflow:

  • Purchasing new equipment/machinery
  • Finance repayments
  • Payments to owner
  • Hiring new staff
  • Insurance payments

Step 3: Create Your Cash Flow Forecast

With the data you have in hand, you are ready to bring it together in your cash flow forecast. To create the forecast, determine your opening cash balance. This is the amount of cash available at the start of the forecasting period you have decided.

The next step is to input all of the cash inflows from Step 1. Once completed, deduct all the cash outflows from Step 2 for the same period. The result will indicate the cash balance you will have left once all the inflows and outflows are accounted for.

This is referred to as the closing cash balance. It will also determine the opening cash balance for the next forecasting period.

Analysing Your Cash Balance

If your business’s cash balance is lower at the end of the forecasting period than it was at the beginning, it is an indication that your cash flow is negative. It may be prudent to improve your cash flow by cutting costs, increasing sales or accessing the right business finance solutions to cover a gap in working capital.

On the other hand, if the closing balance is higher, this indicates your business is cash flow positive and in a good position to expand or explore new opportunities for growth.

Comparing Your Cash Flow Projection to Financial Results

Your cash flow forecast is a projection, not a prophecy. It can help you analyse the financial performance of your business by setting a benchmark of financial expectation. However, for a cash flow forecast to be effective, you will need to make regular updates to your data based on the reality of the financial results. The more accurate your data and cash flow projection template, the better able you will be to predict the next period’s financial performance.

If your business does not perform as well as expected based on the forecast, it is important to investigate why that might be the case. Is there a new competitor in the market? Are suppliers increasing their prices? Are there macroeconomic shocks that were not anticipated?

There might be a multitude and mix of different factors here. Proactively monitoring your actual cash flow will increase your ability to identify risks ahead of time and make informed decisions as a result. For example, you may seek to explore financial solutions with the team here at ScotPac to improve your cash flow.

Securing Business Cash Flow

Whether you are looking to expand and grow your business, or simply want to understand financial performance and forecast cash flow better, having a suitable cash flow projection template is key.

If your business is anticipating or experiencing a cash flow gap or you need assistance with putting together your own cash flow template, make sure to reach out to our lending specialist today. We are the largest non-bank lender across New Zealand and Australia and our breadth and depth of business growth finance solutions can be customised to empower your company with the injection of capital it needs to succeed.