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How to create a cash flow forecast?

Being a business owner comes with its own set of risks and rewards. Managing cash flow can be a challenge for small business owners. The risk of running out of cash is one of the most talked about issues that can come up. Managing your cash flow properly can help you manage the risk of default.

That’s why cash flow projections are so important. Implementing a cash flow projection for your business will help to create more informed decision-making.

Cash flow forecasting is a prediction of the cash coming in and going out of your business. This lets you plan how much money you have at any point in time, so that when it comes to paying invoices or taking payments, there are no surprises.

For a company, it is important to make predictions about the future. These may be for the next few weeks, few months, or even further down the line.

Let's discover in 4 easy steps how to write a cash flow forecast:

Step 1. Enter Your Beginning Cash Balance

For the first month, start your projection with the actual amount of cash your business has in your bank account. Your beginning balance for the upcoming month will be the ending cash balance from the previous month.

Step 2. Estimate Cash Coming In

List all of the cash amounts that you expect to take into the business during the month. Include all of the cash coming into the business; like collections of previous sales made on credit, transfers from your personal account to your business account, any loans received by the company, etc.

You may start with estimating the sales that you expect to be paid in the upcoming month. For example, If you have $10,000 of invoices due in the following month and expect 80% to be paid, you should put an estimate of $8,000 as cash incoming from sales.

If you also have other sources of income, such as rental or interest income, then put them below the sales revenues.

Step 3. Estimate Cash Going Out

Enter all your projected payments for the month. Add together all of your variable costs (i.e. cost of purchased goods, inventory) with any fixed expenses, such as rent, utilities, Office expenses, tax payments, loan payments, etc.

Step 4. Subtract Cash Outflows From Cash Inflows

As a final step, subtract total monthly cash outs from total monthly cash-ins and you'll know how much cash you have left at the end of each month. This figure will also be your starting cash balance for the following month. Copy this amount to the top of the following month's beginning balance column and start this process over again.

You can download a sample cash-flow template for free here:

Visit us at if you need a professional assistance for your finances in your small business.

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