Cash flow forecast guide for small business owners
A cash flow forecast is a simple plan that shows how much money will come into your business and go out of it, week by week. Build one, and you can see a cash gap weeks before it hits. That gives you time to act. This guide shows how to build a 13-week forecast with a plain spreadsheet.
Why profit is not the same as cash
Profit is what is left on paper after costs. Cash is what is in the bank today. A business can show a profit and still be unable to pay its rent, because a big customer has not paid yet.
The U.S. Small Business Administration describes cash flow as the movement of money in and out of your business. An SBA blog from 2012 adds that a business can be profitable and still have poor cash flow, because money coming in and going out is not in step. A forecast helps you see that mismatch early. You are not just recording the past. You are looking ahead.
Many owners track sales but not the date the money arrives. A sale made in week one may not become cash until week eight. Your forecast must use the cash date, not the sale date.
Sources: U.S. Small Business Administration, Develop a cash flow analysis for your business (sba.gov, archived 2013 copy); U.S. Small Business Administration blog, Projecting your business cash flow made simple (sba.gov, archived 2012 copy).
Pick a period and set up your sheet
Thirteen weeks is a good length for a small firm. It covers one quarter. It is short enough that your guesses stay close to real life. It is long enough to see a rent payment, a payroll run and a tax bill.
Open a spreadsheet. Put the weeks across the top, from week 1 to week 13. Down the left side, make three groups: opening balance, cash coming in, and cash going out. Add rows at the bottom for total in, total out and closing balance.
Loans belong on the sheet too. The U.S. Small Business Administration says money from a loan counts as cash coming in, and loan payments count as cash going out. Put each one in the week it happens.
Sources: U.S. Small Business Administration, Develop a cash flow analysis for your business (sba.gov, archived 2013 copy).
List what comes in
Start with your opening balance. In week 1, that is the money in your bank account today. After that, each week opens with the closing balance of the week before.
Next, list your cash coming in. Common lines are sales, money from customers who owe you, asset sales and other income. Put each amount in the week you expect the cash to land, not the week you send the invoice.
Be careful here. Look at how fast your customers really pay. If an invoice says 30 days but most clients pay in 45, use 45. Be honest and a little cautious. It is safer to plan for late money than to count on early money.
Sources: U.S. Small Business Administration, Develop a cash flow analysis for your business (sba.gov, archived 2013 copy).
List what goes out
Now list every payment. Start with a long list. It should include stock and purchases, accountant fees, advertising, bank fees, interest, utilities, phone, loan and lease payments, rent, repairs, insurance, licences, wages and income tax.
Place each cost in the week it is due. Rent may fall in week 1, 5, 9 and 13. Payroll may be every two weeks. A yearly insurance bill or a tax payment may fall in just one week. Those lumpy bills are the ones that surprise owners, so put them in early.
Label every figure you are not sure about as an estimate. Also decide whether your amounts include or exclude sales tax. Pick one way and stay with it.
Find the gaps and plan your moves
For each week, work out three numbers. Take total in and subtract total out. That is the weekly cash balance. Then add it to the opening balance. That is the closing balance, and it becomes next week's opening balance.
Now look for any week where the closing balance falls near zero or below it. That is a cash gap. Ask what you can do about it today. You might ask a customer to pay sooner, split a large supplier bill into two parts, delay a purchase that is not urgent, or talk to your bank before you need money, not after.
The SBA suggests asking a business accountant, or a business expert at your local SCORE office, for help if the process is new to you. A short review with an adviser is often worth the time.
Update the sheet every week. Replace the guess for the week that just ended with the real number. Then add a new week 13 at the end. Over time you will see where your guesses are off and get better at them.
Sources: U.S. Small Business Administration, Develop a cash flow analysis for your business (sba.gov, archived 2013 copy).
A short checklist
Use this list when you build your first sheet. Write down your opening bank balance. List every source of cash and the week it will arrive. List every payment and the week it is due. Mark estimates as estimates. Add up each week and check the closing balance. Circle any week that looks tight, and write one action beside it. Then repeat the check each week.
A forecast will not be perfect, and it does not need to be. Its job is to give you an early warning and a clear next step.
General business information, not financial or accounting advice. Ask a qualified accountant about your own case.
Sources
U.S. Small Business Administration, "Develop a cash flow analysis for your business," sba.gov (archived copy dated 3 March 2013). U.S. Small Business Administration blog, "Projecting your business cash flow made simple," sba.gov (archived copy dated 26 September 2012).