A Beginner’s Guide To Cash Flow Forecasting

person working on an ipad and reviewing the cash flow statement


Do you know how much money enters and leaves your business in a given period? Many business owners struggle to maintain a grip on their finances. They need a tool to help them better predict what they will need to spend and what they will bring in over the course of several months or even years. This is where cash flow forecasting comes into play.

How do you accurately predict your spending habits and revenue? This quick guide to cash flow forecasting will help you get started!

Managing Cash Flow

The first thing you need to know when working with cash flow forecasting is how to manage your cash flow. This means knowing just how much money is coming into your account and how much is leaving each month. A positive cash flow indicates earning more than you are spending while a negative cash flow indicates the opposite.

It is important to get a solid handle on your current finances before you can begin to practice cash flow forecasting. You should know roughly how much you make monthly and how much you have to spend to keep the doors to your business open.

To forecast, you will need to decide what timeframe you are going to be looking at. Some businesses predict their earnings and spending for a full fiscal year while others may do so quarterly. Think about what will work best for your business.

Creating a Cash Flow Forecast

It can sometimes be helpful to create several different forecasts, particularly if you are a new business. Startups can have a difficult time predicting just how much money they will make and accurately listing all their expenses. You should strive to create a best-case scenario, worst-case scenario, and at least one model in between.

Using a basic spreadsheet, list out all of your expenses from rent to salaries to electricity. You should do your best to estimate any future costs that will need to be paid during the timeframe you are looking at. Be sure to include payments for services that you use annually, loan payments, and any other bills you’ll incur.

In a separate column, include how much you think you will make during the same period of time. This can be revenue that comes from sales of products, services, and/or the sale of certain assets you no longer need.

On a weekly basis, you should compare your progress and bills to your forecasting. This helps you better manage where your money is going and how much you have coming in. A comparison is a great tool to help you refine your cash flow forecasting for future periods.

Call the Professionals

Cash flow forecasting doesn’t have to be difficult, but it does take some time to manage properly. If you are still confused about how to predict your cash flow, you may need some professional guidance. Compass Accounting in Winnipeg is here to help you with all of your cash flow forecasting needs!