What is normally included in a cash flow forecast for forward periods?

Cash flow forecasting model and how to create one

A cash flow forecast is an estimate of the amounts of money you expect your business to receive in and pay out over a future period. This period is usually anything upwards of 12 months, but can also be prepared on a weekly basis. But what is normally included in a cash flow forecast for forward periods? Let’s take a look…

What is normally included in a cash flow forecast for forward periods in 15 seconds…

A cash flow forecast is an estimate of future monies (or cash) you expect to receive in by your business and pay out from your business. Instead of an historical record of these amounts in your accounts or of looking at the amounts received into or paid out of your bank account on a day-to-day basis, you simply need to look at the same concept, but for forward periods instead. Included in your cash flow forecast are all your itemised projected income and expenses, which is usually forecast ahead for 12 months or more.

What is normally included in a cash flow forecast for forward periods?

If you think about a cash flow forecast as a summary of all your businesses sources of cash coming into your business vs the various amounts being paid out from your business, this will make preparing your forecasts much simpler.

But instead of the historical recording of these amounts in your accounts. Or instead of looking at the amounts received into or paid out of your bank account on a day-to-day basis. You simply need to look at the same concept, only for forward periods, but with reference to what is normal for your business in terms of cash flows.

How long are the forward periods of a cash flow forecast?

These forward periods could be simply for a 12 month period. Or it could be for much longer. The normal forward period that cash flow forecasts are prepared for is three years or 36 months.

Having said that, many businesses also need to prepare weekly cash flows to keep a track of estimated cash coming into and cash being spent from the business on a more regular basis.

Either way, the concept is the same. It’s about looking at what is likely to be received vs paid out from the business over forward periods. But based upon historical information, but adjusting this for any expected changes. It’s about planning for the future to take account of future income and expenditure.

Cash flow forecasting model or template

Before preparing your cash flow forecasts for forward periods, you are better to prepare a cash flow forecast template first.

By preparing a ‘model forecast‘ or a forecast template, this will make it easier when you come to change the numbers or use it again in the future. If you have chosen to use software like Excel to prepare your cash flow forecast template, this will usually take a bit of time to plan out what needs to be included. You will also need to work out the various formulas too.

But also, don’t forget to consider how the cash flow forecasts impact on the profit and loss forecast, as well as the projected balance sheet too.

More Reading: How to create a projected balance sheet

What would you expect to include in these forward periods?

Let’s take a look at the types of income and expenditure you might expect to find in a cash flow forecast for forward periods.

Money likely to be received by your business in forward periods:

The following are the types of income or monies receivable by a business that might be included in forward periods of a cash flow forecast.

• Payments received from your customers.
• Repayments of VAT or sales tax (including GST) where your business is in receipt of this type of tax.
• Loan advances from banks.
• Cash advances from factoring companies where receivables are factored.
• Loan advances from the company directors.
• Issues of share capital including venture capital investment.
• Cash advanced by business owners for non-incorporated organisations.
• Proceeds from the sale of assets.
• Other income receipts.
• Deposit account interest.
• Tax refunds.
• Repayments of other debtors.
• Other creditors received.

Money likely to be paid by your business in forward periods:

The following are the types of expenditure or monies payable by a business that might be included in forward periods of your cash flow forecast.

• Payments to suppliers for cost of sales or direct costs and for overheads.
• Payments for wages and salaries of your employees.
• Expenditure on capital items like plant, equipment, fixtures and fittings and buildings or land.
• The payment of dividends to shareholders for limited companies or corporations.
• The payment of drawings for non-incorporated organisations.
• The repayment of directors loans.
• Loan repayments for bank loans and hire purchase.
• Repayments to factoring companies.
• Interest paid on bank overdrafts or on bank loans where interest is debited direct to the bank.
• Credit card charges if your business takes credit card payments from customers.
• VAT or sales tax (including GST) payments.
• Payments for employee taxes on wages and salaries like PAYE.
• Repayments of other creditors and liabilities.
• Advances for other debtors.
• Tax payments.

The above list of forward receipts and payments should be represented in a way that is clearly understood on your cash flow forecast report.

More Information: Cash Forecaster: Cash Flow Forecasting Software: Imagine yourself saving time setting up lengthy and complicated spreadsheets with our simple cash flow forecasting software.

Why is a cash flow forecast important?

Cash flow forecasting is important because if a business runs out of cash it may not be able to continue. But also, if a business knows in advance that it might run short of cash, it’s far better to plan for this before it happens. It’s far easier to approach banks and lenders before cash flow problems arise otherwise you may not able to obtain new finance.

It’s important that a business does not become insolvent and go broke. It is essential that management forecast what’s going to happen to cash flows in the future to make sure the business has sufficient funds and working capital to survive.

It’s important to recognise that even profitable companies can run out of cash. So just because your business is making profits, business planning and cash flow forecasting is still important to do.

Cash flow forecast example

Here’s and example cash flow forecast report for a construction business.

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