Cashflow Forecasting

In Business Together, February 20233 MinutesBy Roylance WatsonFebruary 25, 2023

Creating a cashflow forecast at the beginning of the year is the best way to remain on track with your targets for the year.

A new year is a clean slate to start making those business changes that we may have thought about for a long time but have yet to get to. The key here is to not commit to too much – and what you do commit to, communicate it to others to make yourself accountable.

In business, February to March is the time to get your forecasting done (with a March balance date). So what is forecasting, and why should you do it?

Forecasting, or a projection, is the processing of budgeting income and expenses, capital expenditure – and therefore cashflow – for a period. The forecast will aid in planning and decision- making for the coming year.

The key benefits of an annual cashflow forecast are:

• It gives you an understanding of your cashflow for better decision-making

• Enables you to predict and plan for large cash outflows

• Identifies key drivers of cashflow in your business

• Allows you to monitor your actual cashflow against forecast in your accounting software

• Provides peace of mind that your cashflow needs are known and properly funded

• Improves communication and relationships with your financiers and suppliers

If you haven’t done a forecast before, I highly recommend speaking with your accountant. If you know how much money will be coming out of your business, and when, you can confidently plan and execute desired growth and improvement strategies to achieve positive changes.

Working with your accountant is the best way to prepare a forecast accurately. They will likely draft up a forecast based on previous years’ data and then meet with you to discuss forward-thinking changes to input into the forecast. You then have a budgeted P&L, balance sheet and cashflow.

Reporting your forecast against actual performance throughout the year is a great motivator and ensures that you remain on track. If you find you aren’t on track, you can act a lot quicker than if you wait until the end of the financial year to make changes needed as a result of unplanned performance.

Good luck for the coming year and exceeding your forecast expectations.