Cash forecasting – a practical guide

My recent blogs about understanding your numbers talk about cash - your business’ lifeblood - and  include actions you can take to help your cash flow.

One of the most important things you can do for your business is to use a simple cash flow forecasting tool that looks 13 weeks out and is maintained on a daily or weekly basis.

What this does is allow you to plan your cash and know when you might have issues. Nothing is more stressful for a business owner then knowing you have no money in the bank account and yet payroll is due tomorrow.

Using a cash forecasting tool will give you more insight and visibility of your cash requirements which should lead to better decisions now. This could be something as simple as ringing up your debtors and asking for payment or delaying creditors payment, ringing the bank for an extension on the overdraft or accessing a credit line.

This blog gives you an idea of how to create a simple spreadsheet to keep track of your bank balance and your cash movements.  This allows you to focus on getting the funds in when you need them and understand the implications of taking funds out – how this impacts the future. This sort of simple process should be part of your daily review in business management.

To create a cash spreadsheet you need to set up an easy spreadsheet where you can simply add new columns as the weeks move on.  I have a number of example spreadsheets that I've created for my clients over the years.  The one I recommend for most business owners tracks the cash on a daily basis and forecasts out three months. An example is below.

This is set up with columns for Monday to Friday week 1 to week 13, with a summary of the total week. It has rows for cash in and cash out to represent the receipts and standard costs and outgoings. This allows the business owner to enter the payments on the right days of the week. This spreadsheet can either be reset every two or three weeks, or you can simply copy a new week to the end and have a continually rolling forecast.

For this to be effective, the business owner must ensure it's maintained and updated –preferably daily but weekly is acceptable if there are minor payments in and out.

These are the actions you need to take to make this work for you:

• Enter in your opening balance, starting week and OD limit if you have one

• Load up your expected cash in from debtors and/or cash sales

• Load up when your accounts payable and standard weekly or monthly payments are due such as vehicle leases, loan payments and wages

  • Tip: review your bank statements from the last 3 months and check what regular payments have been coming out so you don’t miss anything.

• Make sure you include your key business obligations such as PAYE or GST

• Enter those annual expenses such as insurance or ACC payments

• Then check:

  • What is your balance doing? Do you have enough cash for the payments you're expecting?

  • What actions can you take to ensure cash is available when you need it?

This is service I offer all my clients and as a introduction offer if you contact me direct at Rachael@cfopartner.co.nz I will forward you the template model free of charge for you to use. Contact me now!