Cash flow forecasts and templates: What you need to know

The livelihood of any business depends on cash flow – having the ability to forecast accurately is a vital skill to navigate financial uncertainty.

Our guide will offer you some tips on creating reliable forecasts for the various scenarios your business may face.

The essence of a cash flow forecast

What is a cash flow forecast? In a nutshell, it forecasts the incomings and outgoings of cash over a given period – like the next six months or financial quarter.

It also tells you what cash surplus or deficit should be left over at the end of that period.

Cash flow forecasts can also help you make day-to-day decisions by assisting you to evaluate:

• Whether you should increase or decrease customer credit terms
• Whether supplier payment terms need negotiating – for example, if cash flow will be slow, you'll likely want more time to pay your suppliers
• Future business overdraft requirements

Unexpected overheads or reduced sales

Actions to take if your margins have reduced by unexpected overheads or reduced sales.

Benchmarking

Perhaps the greatest value of cash flow forecasting comes from its benchmarking qualities.

After the period you've forecasted has ended, you can go back and compare it to reality by judging the performance of your business and identifying unexpected cash flow issues. That can help you remain in greater control in the future.

When to use a forecast

Your cash flow forecast should be completed for each month.

Remember to take into account any:

• Seasonal aspects of your business
• Cash cycle issues – you may get a lot of business in June but only get paid for it in August

Using historical data

If you have previous trading history to go on, the forecasting process will be easier. You can take your reliable data from previous trading periods and increase or decrease the amounts depending on your insights into future markets.

But accuracy is key. For example, if there's a lot of talk about the economy getting worse or turning a corner, don't be too quick to make any blanket assumptions.

Talk to your customers and suppliers to find out about confidence in your specific sector. Then, check your findings with a credible accountant with experience in your industry to fine-tune your data.

The more effort you place into dispelling assumptions now, the more accurate your cash flow forecast will be.

Analysing your forecast

Once you complete your cash flow forecast you'll either find that you're heading towards a cash surplus or a cash deficit position. If it's the latter, don't panic – it's actually a good thing that you spotted this now, as you’ll have time to adjust course.

If the cash shortfalls you've identified are greater than your overdraft facility, talk to us. We'll work with you to help you further identify the sources of your cash shortfalls and the solutions you can use to reduce or eliminate them.

Regardless of your findings, you should:

• Review your completed cash flow forecasts regularly
• Insert actual figures once available
• Investigate any differences between actual figures and your forecasts

It's all about staying in financial control so you can show other stakeholders and advisers that you know the direction your business is going in, while reducing the potential impacts on ongoing uncertainty along the way.

Using the ANZ cash flow forecast template

If you’re using the ANZ cash flow forecast template, here are some steps to help you get prepared:

1. Prepare the sales forecast (e.g. sales will increase by 10% for the first six months) and an opening bank balance (i.e. actual cash on hand)
2. Prepare different type of cash inflows and assumptions for the next 12 months
3. Prepare different type of cash outflows and assumptions for the next 12 months
4. Review your projected cash flow versus the actual if you are an existing business (e.g. to test your assumptions or to check if your forecasts need some fine tuning)

Next steps

• Download our Cash flow forecast template (xlsx 114kB)
• Download our Cash flow improvement checklist (PDF 1.5MB)