How to Forecast Cash Flow: Your Guide On What To Know

How To Forecast Cash Flow: Cash Flow Forecast Examples

There are several cash flow forecasting methods, and all of them have pros and cons. We recommend choosing a form of forecasting with help from a team of business finance experts. Our staff can works alongside your financial personnel and show them how to build a cash flow forecast using one of the models below:

1. Direct Method: Examines actual cash transactions
2. Indirect Method: Starts with net income and adjusts for changes in balance sheet accounts
3. Rolling Forecast: Continuously updated to include new data
4. Scenario-Based Forecasting: Considers different possible future scenarios

Now, let’s take a look at how to forecast cash flow using a few basic steps.

Forecast Your Income and Sales

This step involves analyzing past sales data, market trends, and any contractual income (like subscriptions or long-term contracts). During the process, be realistic and bear factors like seasonal fluctuations or market changes in mind as you go.

Estimate the Inflows of Cash

Next, focus on other sources of cash inflows:

1. Accounts Receivable: Expected payments from customers
2. Investment Income: Dividends or interest from investments
3. Loans or Lines of Credit: Funds available from borrowing

As you create your forecast, stay cautious, realistic, and as accurate as possible. Remember, timing is crucial — when will these inflows actually hit your account?

Estimate the Expenses and the Cash Outflows

The next step in the process is expense estimation. Data needed for this step includes:

1. Fixed Costs: Rent, salaries, and other regular payments
2. Variable Costs: Raw materials, shipping costs, etc., which fluctuate based on sales volume
3. One-Time Expenses: Infrequent expenses like equipment purchases

Projecting cash outflows accurately helps you prevent liquidity crunches and gives you a more realistic picture of your overall cash flow.

Compile Estimations Into Your Cash Flow Forecast

Once you have all your estimations, it’s time to compile them into a comprehensive forecast. This forecast should include a detailed spreadsheet that projects cash flow weekly, monthly, or quarterly, depending on your needs.We recommend sticking to a monthly forecast at first, which works well for the majority of our clients.

Review Estimated Cash Flows Against the Actual

After you have your data compiled, make sure to practice regularly comparing your forecasted cash flow with actual figures. This comparison will help you identify any discrepancies and make corrections as needed.

Look to TGG for Next Steps

If you’re overwhelmed by the complexities of cash flow forecasting, we’re here to help. We specialize in a wide array of financial management services, including expert assistance in cash flow forecasting. We offer:

1. Tailored Solutions: Customized approaches to suit your business’s unique needs
2. Expert Advice: Professional insights to improve your forecasting accuracy
3. Financial Management Tools: Advanced tools for more efficient cash flow management

Partnering with the TGG Accounting team gives you the support and expertise you need for accurate financial planning and an informed decision-making process. We can show you build a cash flow forecast that perfectly fits your company’s structure, goals, and needs