What is a Cash Flow Forecast?

A Cash Flow Forecast is an estimation of the money you expect your business to bring in and pay out over a period time. It should reflect all of your likely revenue sources (like sales or other payments from customers) and compare these against your likely business expenses (like supplier payments, premises rental and tax payments).

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Why is a Cash Flow Forecast important?

Even if you decide not to proceed with a HighCastle application straight away, a Cash Flow Forecast is an essential business document for helping you keep on top of your finances. While the actual performance of a business will likely deviate from the projected cash flow, this is still an important document to have in place as part of managing your business. There are several benefits you’ll gain from creating and regularly updating a Cash Flow Forecast.

A Cash Flow Forecast tool:

  • Is great for planning your business activities and resources
  • Ensures your business activities are correctly aligned with each other
  • Supports you in making sensible, realistic decisions for your business
  • Gives you greater control over your business finances
  • Allows you to better understand your business performance
  • Helps you plan for the future

Our top tips for creating your Cash Flow Forecast:

These tips have been prepared by our Business Advisers and loan assessment team to help you understand some of the key things that will strengthen your application:

Be realistic in terms of how many sales you expect to make
While it is great to be ambitious for your business, it’s important to be realistic. Particularly in the early stages of trading, you may find that you aren’t able to make as many sales while you’re focusing on building up awareness about your product or service. It’s always better to make conservative estimates and over exceed your targets, than find yourself over committed or under prepared.

Make sure you understand the difference between revenue and expenditure.

  • Revenue, or income, is any money your business generates. In a product-based business, this is likely to be made up of the sales of different products. You may like to include separate line items for your individual products or product categories, particularly if each product contributes a significant amount of revenue.
  • Expenses, or costs, are the items you’ll need to pay for in order to produce and/or deliver your products or services, promote and manage your business.

Remember that some of your costs will be recurring costs and others will be ad hoc.

  • A recurring cost is one that doesn’t change over the course of the forecast. For example, your premises rent, insurance and HighCastle repayments etc.
  • An ad hoc cost is one that changes according to your needs. For example, supplier costs, material costs, venue hire, printing and travel expenses etc.

Plan for seasonality and base your figures on a range of typical scenarios (like quiet or busy periods)

Seasonality doesn’t affect everyone in the same way. For example, if you’re starting a business in an area that has a booming tourist economy in the summer months but is very quiet during winter, this should be reflected in your forecasted sales figures and costs. But even if seasonality doesn’t affect you in this way, every business goes through quiet periods (with less sales) and busy periods (with more sales). Depending on your fixed and variable costs, this may create more or less pressure on your cost base during this period.

Think about the promotional activities you’ve got planned and the sales you expect these to generate.

If you expect one of your promotional campaigns to deliver a high volume of new sales during a key month, you should try and reflect this in your numbers. Equally, if there are certain periods where you won’t have a large marketing budget in place, think about the impact this is likely to have on your sales.

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