Complete a cash flow template accurately

Whether you use an online tool, cash flow forecasting software, or a cash flow forecast template, the quality of your forecast depends on the quality of your inputs.

It’s essential to forecast and monitor your business’s cash flow accurately so you’ll able to plan ahead for the good times and the bad. Then if you’re aware of an upcoming period when your business will hit a slow patch, you’ll be able to plan ahead to arrange timely finance.

First use accurate figures

It’s worth putting some time and careful thought into getting these figures right, because this forecast is usually the focus for banks or anyone else reviewing your business financials.

That said, most cash flow forecasts contain some assumptions due to market fluctuations, seasonal sales cycles, and other unknowns.

Do your best to be as accurate as possible when making assumptions, referring to past sales data, benchmarks, previous invoices, and other supporting documents to help you determine the most accurate numbers possible.
At the bottom of the cash flow forecast template, make detailed notes on the assumptions you’ve made in your forecast to help anyone else reviewing your forecast to better understand the numbers.

Rely on solid research to estimate sales

Use market research as well as your sales history to calculate accurate sales projections. If you haven’t started your business yet, thoroughly research your target market to assess realistic future levels of sales.

You should also consider peak seasonal periods; cash flow usually isn’t consistent all year round. For example, if you’re in the retail business, high sales volume for Christmas may be followed by a slump in January.

Estimate costs

Once you’ve estimated your sales for each month, you’ll be able to estimate your costs:

Make sure your own salary is realistic. Can you cover your personal living costs, or will you be draining too much out of your business too soon? It’s a balance between paying yourself too much and not paying yourself enough to meet your personal living expenses.
Review your accounting software and previous bills to estimate recurring costs such as payroll, rent, utilities, telephone service, and other overheads.
Don’t forget one-off items like accounting fees and your tax obligations. Many businesses struggle to find the cash to pay taxes when they’re due. Your accountant can help you estimate what your tax obligations are likely to be so you can plan for it in your cash flow forecast.

Again, you’ll need to explain in detail how you calculated these amounts, noting any assumptions you’ve made in your cash flow budget.

Check your capacity

If you estimate your cash flow for a month to be $50,000, consider how feasible this number really is. There are only so many hours in the day and you’ll only be able to deal with a certain number of customers.

Remember that even if you invoice $50,000 of sales in a month, you can’t guarantee the full amount will be paid on time. For example, you might find that:

80% of invoices are paid in the month following invoicing.
10% are paid two months later.
10% are paid three months later.

Look for industry benchmarks

Often you can find industry data such as information about average sales, margins and costs to help you estimate in your business. Contact your industry association if they hold any information or search public records of larger firms (especially if they are listed) to get their financial records.

Involve your accountant

It’s always a good idea to run your figures past your accountant before presenting your cash flow forecast to outside readers, such as potential lenders or investors. Your accountant or business advisor should be able to spot errors, omissions, or discrepancies and will likely have valuable insights as to how you might be able to both improve the cash flow forecast template you’re currently working on as well as your actual cash flow in your business.