A cash flow forecast is one of the most important tools a business will have to ensure the business security. The forecast will tell you if you have enough resources expand it, we discussed the benefits of cash flow forecasting previously.

Using specialised software to run a cash flow forecast will enable you to run a more accurate forecast and will inform you of any mistakes or problems you put in. Using Excel for forecasting is prone to error, as large worksheets with multiple formulas can be negatively impacted by a single touch of a button. It is recommended to use a cash flow software if you are looking to run a comprehensive and accurate forecast. You can use our software to run a cash flow forecast using our free 7 day trial!

The best way to prepare a cash flow forecast is to break the task into several steps, then bring all of the information together at the end. Main steps you need to do to run a comprehensive forecast are:

Prepare a sales forecast

Sales forecasting is a large subject to cover, but it is a key element of cash flow forecasting. Before you begin it is crucial to know that a sales forecasting will not be 100 percent accurate, so once you do review your forecast later, remember that you will need to allow some fluctuation in your forecast and budget.

  • Start with your business objectives, if you are looking to run a forecast once or multiple times? This will determine the amount of detail you should be putting in your forecast, as you will use later to recalculate and audit your business.
  • Look at how accounting breaks down your products and services. Some companies look at hours, meals, rides components, while others just record a product. This is known as the cost of products and will help you keep track of your projections and costs associated with it.
  • Get your sales data. Most sophisticated forecasting techniques will look at the past sales data. But remember, the past itself isn’t the best predictor of the future. You should analyse all of the potential influences to your business, like market fluctuation or political impacts. You can read more about what can impact your business in our articles about threatcasting and scenario planning.
  • If you don’t have past data. Look at what can impact your business. Breaking down the important sales decisions and components of sales will help to give you a start, then review the market and competitors.

If you are interested in running a sophisticated sales forecast we have a helpful guide that concentrates on sales forecasting and how to avoid the biggest sales forecasting pitfalls.

Prepare cash inflows

Prepare all cash inflows – these are the movements of cash into the business. These will vary from a business to business, but are mainly one of these:

  • Rebates and tax refunds
  • Extra equity and investment into the business
  • government or other grants
  • loans that are paid back to you
  • Selling an asset; and
  • other sources such as royalties, franchise fees, licence fees and so on.

Prepare cash outflows

These are the movements of cash out of the business, a crucial part of estimating these is to ensure that you are cautious about both the size and the timing of the payments that are leaving your business. This is known as contingencies.

When you are calculating your outflow, work out what it costs to make goods available, if you already completed the sales forecast, look at what it costs for you to actually “sell” the product.

Additionally, get all of the numbers for what it costs you to keep the business running, like administration or operation. Again, expenses will vary greatly depending on the type of the business that you have, some outflows that can easily get overlooked are:

  • Buying new assets
  • Bank fees
  • Loan repayments
  • Licensing fees, franchising fees or royalties
  • Investing funds


In the beginning, your sales forecast established what period forecast you will be running. Because cash flow is sensitive to timing and your incoming and outgoing cash it is crucial that you run everything based on those specific dates.

Start with your opening bank balance, then add in all the cash inflows and deduct the cash outflows for each period. It is recommended to run your forecast monthly, but you can do it as often as you want. The number at the end of each month is referred to as the closing cash balance and this number becomes the opening cash balance for the next month. Do this for the whole period you are planning to forecast for.


Once you’ve done your cash flow forecast, make sure that you go back and check and check what you estimated for the period. This will highlight any differences between estimated and actual and will help you see why your cash flow didn’t meet your expectations.

You must remember that cash flow is all about timing and the flow of cash in your business. So, when you are preparing a cash flow forecast to make sure that the timing is as accurate as possible. This might be a little tricky as some companies only pay their invoices in 7 working days, but if you are careful enough you will be able to accurately measure each and every payment in and out of your business!

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