Cash flow forecasts – what should you include

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.

Cash flow forecasts – what should you include

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