4 Tips for Accurate Cash Flow Forecasting


Cash flow forecasting is, hands down, one of the most important things your business should be doing. In short, its how your company can predict your annual profits vs. your end-of-year debt. It also allows you to get a clear glimpse of where you are making the most and see who you owe money. It will help you set your financial goals for the next year.

So how do you go about setting up your cash flow forecasting? Here are 4 tips on how to do so (and make it as accurate as can be).

1. How Much Money Will You Be Bringing In?

The first step in any cash flow forecast is to estimate how many sales you think you will be bringing in either weekly or monthly. A great way to come up with these estimates is to reference your previous sales history. Look at the past couple of years and try to get a good idea of, considering the past year’s performance at that time, what kind of weekly or monthly sales you expect to see. Obviously your sales won’t always be consistent, so take into consideration patterns that are the same each year (seasons and holidays, for example) and factors that could change each year, such as trade shows or promotions, when making your projections.


It’s very important that you think in length about your future plans. Any new marketing efforts you make or products you bring into the mix should allow you to increase your sales forecasts. On the other end, if, for example, you know of a new competitor entering the market, you might want to drop your figures a bit as they may gain a bit of your market share.

If you don’t have previous sales to reference (as you’re a new business), try to put together an estimate by looking at industry standards, considering performance of similar businesses, or even a customer survey.

2. Consider the Terms On Which You Will Be Paid

If you’re an experienced business owner, than you know that you don’t always receive the money you earn immediately. For many of your sales, you could be waiting 30+ days to see that cash. Therefore, it’s crucial when doing a cash flow forecast to estimate when you expect payment from your sales. You might be a retail shop who gets all money at the point of sale, but for those that operate on traditional trade credit or simply just bill your customers, you need to evaluate what your average DSO is and  consider this in your projections. This way, you not only know how much you expect to make, but when you can expect to receive it.

3. How Much Money Will You Spend?

When making your cash flow forecast, it’s absolutely crucial you are able estimate how much your company spends. Of course, these costs are going to be both fixed and variable, but you need to do the best you can. Your fixed costs are such things as rent and how much you’re paying employees, where variable costs are, most of the time, associated with the sale of the product or service you are providing. Therefore, reference back to your forecasted sales to help estimate some of these variable costs.

Do your best to estimate what bills you will have and when they will need to be paid. Be sure to go through your expenses last year, as well, to make sure there aren’t any annual fees that you forget about as they only come once a year. Once estimated, be sure to add these costs to your cash flow forecast.

4. Putting the Numbers Together

If you’ve followed the steps above, then you’ve been able to properly estimate your expected income and expenses. Now, it’s about bringing those numbers together so you can really put them to good use.

To begin, add in an opening bank balance, then you simply add in whatever your revenue is (minus expenses) for whatever time periods you’re looking to forecast (weekly, monthly, and so on). Remember, the accuracy and effectiveness of these forecasts are going to depend on how often you forecast and how detailed you are in making projections.

When you first create a cash flow forecast, be sure to revisit and update it based on how your business has actually been performing. Staying on top of your cash flow forecast will help insure accuracy when moving forward.

Although cash flow forecasts do take some time, and you might question its effect on your bottom line, the most important thing for business is cash flow. Cash is what makes your business run, and if you don’t keep a proper eye on what cash is coming into your business and what cash is leaving it, you might find yourself in trouble. Make a habit of continually preparing cash flow forecasts, ensuring the sustainability of your business’ financial health.

Meredith Wood is the Director of Community Relations at Funding Gates, an online application for small businesses that allows them to track, organize and manage their receivables all with simple clicks.