Cash flow forecast software the bear essentials.

In preparing a good cash flow forecast for a bank or and investor you need to know what the forecasts should include. I have therefore put together a list of what you should include, as follows:

- The cash flow projection should realistically be for a period of not less than 36 months ahead. And for each of the three years these should be presented on a month-by-month basis.

- The forecasts should distinguish between the business cash flow and the business profit and loss figures. Cash flow of a business relates to the timing money is received by the company and paid out of the company and would include VAT in the UK and Europe and Sales Tax in America. Whereas your profit flows should include your income/expenditure figures net of VAT or Sales Tax and will be shown in the month invoiced/incurred irrespective of the month in which they are either received or paid. For example, if you invoiced your client in October and they took 30 days to pay you, your profit and loss would include the amount in October and your cash flows would include the same amount (inclusive of VAT or Sales Tax) in November.

- A balance sheet should be presented at the end of each period end, so in a 36-month forecast this would mean you would have three balance sheets. This is essential, not only to show to your investors or the bank what your balance sheet will look like, but also this is a good way to prove that your figures work or balance. Producing a balance sheet will make your cash flow forecasts look very professional.

- A good cash flow forecast will demonstrate the businesses breakeven point, which banks especially like to see if they are lending, so that they will be able to see the level at which your sales can drop to before your business reaches its break even point. They will then be able to see how sensitive your business is to falls in sales should your predicted sales forecast not work out.

- You should disclose within the cash flow part of your forecasts the receipts you get from business bank loans, proprietor or shareholder loans and any director loan advances.

- If your business is not a start-up business your forecasts should include an opening balance sheet position.

– Your cash flows should present within the forecasts the timing of payments for VAT or Sales Tax, whether this be on a monthly, quarterly or annual payment basis.

- Your cash flows need to take account of company tax payments within the cash forecast reports.

- Purchases and sales of fixed assets should be included and shown as a separate line on the cash flows where appropriate and any depreciation charge on these fixed assets should be disclosed within the profit and loss section of the reports.

– The reports should include the company name and of course the period to which the report relates.

When you prepare a cash flow forecast you need to plan what it is you will be including in the forecasts.

In summary a good cash flow forecast should include the following:

- Profit forecast for at least 12 months and up to three years and in some cases 5 years hence.
- Cash flow forecast for 12 months as a minimum but likely for three years and as with the profit forecast this could be for 5 years.
- A balance sheet to show that all the figures work
- A summary of the assumptions used in the forecasts
- Details behind the figures, including a breakdown of the sales to show the different lines of sales you make; a breakdown of the overheads and a summary of any bank loans and if your business is VAT registered a breakdown of your VAT returns will help.

The important thing to remember when preparing a profit and cash flow forecast is to make sure that all your figures are clearly presented and in a format that the reader of the figures can easily understand.

Usually, the easy part of preparing forecasts is to work out your costs and overheads. However, the 64 million dollar question is how much your sales are going to be over the next 12 months, let alone the next 3-5 years! It is easy to work out your gross profit on the basis you know what each of your products are going to be sold at and what you cost is to purchase the items. But it is never easy to predict how many items will be sold, even if you have an existing business and even more so with a new business venture.

So a good starting point is to work out your overheads, like rent and rates, which should be easy if you look at the premises you are going to rent. You can then predict your other premises costs, like light and heat and then go on to work out all of your other business expenses, including printing, postage and stationery, telephone, bank charges, advertising etc.

However, one piece of advice is never over estimate your sales because this might catch you out when you are in front of a bank manager. If for example your sales for the previous 12-months was say £200,000 and you forecast over £1,000,000 for the following 12-months you had better have a good reason for the 5-times growth. If your marketing and advertising is not increased, but more importantly your other relevant costs are not equally raised on the back of your business growing by 5-times, then you might have problems convincing the person reading the forecasts that the figures make sense.

If you are pulling your hair out with preparing cash flow forecasts for your business or for the bank manager then look no further!

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