A template for effective cash flow management

An up-to-date business cash flow forecast can help you run your business more efficiently. This template is a great place to start.

​A cash flow template

Understanding business cash flow is the key to running a successful small business. Effective cash flow management helps you to anticipate and prepare for future highs and lows. Our cash flow forecast template helps you to track your month-by-month income and outgoings, giving you the insights you need.

Cash flow forecast template (Monthly) (XLS, 60KB), opens in new window

What is a cash flow forecast?

A cash flow forecast is an estimate of the amount of money you expect to flow in and out of your business. It includes all your projected income and expenses and usually covers the next year, though it can also cover a shorter period such as a week or month.

How can it help your business?

A cash flow forecast can make managing cash flow easier by helping to predict surpluses or shortages of cash. This enables you to make more informed decisions around tax, new equipment purchases or securing a small business loan.

You can also see the likely effect of a potential business change or decision. If you're considering hiring a new employee, for example, you can add the additional salary and related costs to your forecast to see the overall impact of the hire before you decide whether or not to go ahead.

Including best, worst and most likely case scenarios allows you to anticipate your cash position if you suddenly hit tough times or enter better-than-expected trading conditions. Developing contingency plans could help you to feel more confident about running your business.

Monitoring performance

When you compare your actual income and expenses with your forecasts you'll be able to see whether your business is over- or under-performing. If your sales are higher or lower than forecast, for example, you’ll want to find out why. Has a competitor changed their strategy or has a new competitor entered your market? Do you have a customer service or quality control issue? Actively managing your business in this way empowers you to ask the right questions and, ultimately, make the right decisions.

Three easy steps to follow for a cash flow projection

1. Estimate your likely sales for each week or month

Use your sales history from the past couple of years to get a good idea of the weekly or monthly sales you can expect. Include seasonal patterns and one-off events, such as trade shows, in your projections. If you're just starting out, you’ll need to estimate your forecasts based on information from customer surveys, suppliers, the performance of similar businesses and industry experts such as your NAB small business banker, opens in new window.

Don’t forget to factor in your future plans along with current market conditions and trends. If you’re planning a new marketing drive or launching a new product, for instance, you’ll need to include the anticipated increase in sales. On the other hand, if a new competitor has just entered the market, you might want to drop your forecast figures a little to allow for a possible loss of market share.

2. Estimate when you expect to receive payments

If you operate a cash sales business, forecasting is relatively easy since payment occurs at the time of the sale. If you sell on credit you’ll need to factor in the likely delay. If your terms are 30 days, for example, you can expect to receive payment between one to two months after the sale.

3. Estimate your likely costs

Costs are usually a mix of fixed and variable. Fixed costs are those you have to pay regardless of your sales, such as rent and salaries. Variable costs usually depend on sales. For example, you don't have to pay for stock you haven't ordered. Your forecast sales levels will help you to work out the amount of stock or raw materials you’ll need to buy in to meet your orders.

When you're identifying other bills, including when you need to pay them, it's a good idea to go through your historical payment records to make sure you don’t overlook annual or erratic expenses like accounting fees or business taxes.

Keep your forecasts up to date

Once you've entered your weekly or monthly income and expenses into your cash flow forecast it's ready to use. Simply add an opening bank account balance and the revenue, less expenses for each weekly or monthly period, to calculate your likely cash position.

To maintain the value of your forecasts it's important to update them with accurate information against your actual business performance on a weekly or monthly basis. Keeping them current will help you to manage your cash flow more effectively. And, remember, this template can help.