How to forecast your business cash flow

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Cash flow forecasts can help you map your business liquidity – and identify any cash flow gaps ahead. Here’s why you should forecast your cash flow and how to go about it.

You don’t need a crystal ball to see into the future. Most small business owners already have everything they need to look ahead and protect their business from cash flow gaps. With some solid forecasting (don’t worry, we’ll guide you through it), the right insights (they’re sitting in your CommBank app) and strategic thinking, it’s possible to find your flow and even cover yourself for emergencies. Here’s how.

What’s a cash flow forecast?

A cash flow forecast is a snapshot of your business liquidity at a certain point in time, and can help with both short and long-term business planning.

Based on your sales history and expenses, cash flow forecasting helps you predict your future cash flow. It looks at your expenses over a specified period, offset by incoming funds to arrive at a cash balance – which may be positive or negative.

If it’s negative, you may need to take action to avoid a cash flow gap – such as an extension of payment terms with your suppliers or boosting revenue at that time. You may also want to consider putting extra finance in place, so you have extra funds available to cover a predicted gap.

How to forecast your cash flow

To produce a cash flow forecast you can use an Excel spreadsheet or your accounting software to track your incoming and outgoing funds. Or try the cash flow view in the CommBank app.

Here’s how to forecast your cash flow:

  1. Decide on the forecast period, for example, yearly, quarterly, or monthly.
  2. Record your opening balance.
  3. Estimate your incoming payments, including:
    • Product sales
    • Investment income
    • Asset sales
    • Government rebates
  4. Estimate outgoing cash, including:
    • Supplier payments
    • Bills
    • Rent (premises and equipment)
    • Wages
    • Taxes
    • Loan repayments
    • Other liabilities and expenses
  5. To arrive at your closing balance for the period, subtract all your cash outflows from the total inflows.

If you’re just starting out, then you might not have enough data to produce a forecast for your business. However, you can still estimate, for example, your monthly outgoings, and this will help you determine how much you will need to make in sales to cover this.

Refining your cash flow management

As you produce more forecasts, looking back at previous forecasts will help you see where your estimates have been accurate. Also note where your forecasts didn’t make the correct predictions, and try to work out why. Were you faced with unexpected expenses? Were sales slow that period? Or did the original forecast use inaccurate or insufficient data?

My forecast is predicting a gap – what now?

Where there’s a shortfall in your predicted accounts receivable, it may be time to consider extra finance. The size of the gap and the time until you expect to close it will help you determine which type of finance is best.

For a short term gap, you may simply use a business credit card. Or for a longer term gap, a business loan. If you want the flexibility of finance that is there when you need it, and can be repaid whenever you choose, a business overdraft facility can be a potential option.

B2B businesses may also consider a modern online invoice financing solution, like CommBank’s Stream Working Capital. This type of finance lets you tap into the value of your unpaid customers’ invoices to access finance – while only paying interest on the funds you use.1

Want more cash flow management tips?

We look at a variety of ways to manage your cash flow and pin down some of the more common cash flow problems.

Things you should know

  • This article is intended to provide general information of an educational nature only and is prepared without taking into account your individual and/or business needs and objectives. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. As this information has been prepared without considering your objectives, financial situation or needs, you should, before acting on this, consider the appropriateness to your circumstances. Examples used in this article are for illustrative purposes only.

    1 Credit provided by the Commonwealth Bank of Australia. This product is only available to approved business customers and for business purposes only. Applications for finance are subject to the Bank’s eligibility and suitability criteria and normal credit approval processes. The minimum value of nominated invoices is $15,000 per month. A minimum facility limit of $50,000 or more applies to Stream Working Capital. We will require your consent to access your accounting software to assess your application and manage your account going forward. Full terms and conditions, interest rate, establishment fee and line fee are included in the Loan Offer, you should consider these before making any decisions about these products. Bank fees and charges may apply. To use Stream Working Capital you'll need to open or switch to a Stream Working Capital Transaction Account if your application is approved. Fees and charges for this account are in addition to those associated with any existing business transaction product. For the Stream Working Capital Transaction Account view our CommBank Business Savings and Transaction Accounts Terms and ConditionsFinancial Services Guide (PDF), the Electronic Banking Terms and Conditions (PDF) and the Target Market Determination, you should consider these before making any decisions about these products. Bank fees and charges may apply. View our current interest rates

    Commonwealth Bank of Australia ABN 48 123 123 124 and Australian credit licence 234945.