Creating a Simple Cash Flow Forecast

Gaining control of your cash is the most critical step a company can take to weather any storm. At all times, know how much cash you have, how much you will need, when you will need it, and where it will come from.

We put together these simple steps as a starting point to examine your cash forecast. We suggest projecting cash flows for a minimum of two week increments coinciding with your payroll. In times of crisis, some companies do the cash flow on a daily basis.

There are many software applications that can facilitate cash flow forecasting, including DryRun,  Float, and CashFlowTool.

Of course, the most common cash flow forecast tool is Excel. Microsoft offers a number of free templates to guide your cash flow modeling. Here are some simple steps to creating your cash flow in Excel.

Step 1: Start with your current cash balance. If you’re using QuickBooks, make sure that all of your transactions in your bank feed have been posted so your balance is accurate.

Step 2: Cash In. Add your expected collections for the next two weeks. This includes expected cash sales and accounts receivable collections. Be realistic about how much you will be able to collect, since your clients are likely having cash flow issues as well. Cash in also includes draws on your line of credit, if you have one.

Step 3: Cash Out. Subtract your cash outflows including necessities and payroll. To ensure you are including all of your expenses, run an income statement for the past month or quarter to make sure you aren’t missing anything. Also review your accounts payable balance. If you have a budget for reference, even better. Don’t forget about auto debits from your bank account. Cash out also includes any planned capital purchases, owners’ draw, etc.

Step 4: Compute the total cash balance. Start with your current cash balance, add Cash In, and subtract Cash Out.

Step 5: Repeat for subsequent periods, using the ending total for one period as the beginning cash balance in the next period.

Step 6: Address any shortfalls. If your calculations show any negative cash balances, the forecast will allow you to plan in advance. You can add a line to the bottom of your forecast for other sources of cash including loans and lines of credit.

Review all of your expenses to cut out any discretionary items before you commit to spending it. You can also delay discretionary expenses to manage cash flow.

Visit our post on managing cash flow for more tips on ways to manage cash. 

Stay safe and healthy. We will all get through this together.

ABOUT JUNA FINANCIAL SOLUTIONS

We are available to help understand your options and the potential economic impact of the Coronavirus pandemic on your company. You can contact us at info@junafinancial.com.