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Whether you’ve been in business for years or you’re just starting out, maintaining a positive cash flow is a never-ending challenge that takes a lot of preparation and effort. And yet many business owners are only focussed on the here and now – instead of planning and preparing for any future problems. To do that, you need to create a cash flow forecast.

What is Cash Flow?

Let’s start right at the beginning. Cash flow is just the fancy term for the money moving (or flowing) in and out of your business every month.  That’s all there is to it. While it might seem like cash flow only goes one way sometimes – out of the business usually- it does go both ways. Cash is flowing into your business from customers who are buying your products or services, creating an incoming stream. Cash is flowing out in the form of payments and expenses – like rent, supplies or taxes. Cash flow also looks at when those transactions occur, with the aim of always maintaining a positive cash flow balance. By using these 2 numbers together, you can create a picture of how well your business is doing.

You can think of your cash flow a bit like your bank balance. If you have more coming in than going out, you have positive cash flow. If you have the opposite, with more going out than coming in, you are in negative cash flow and will quickly run into problems. For businesses, the aim is to stay as much in the positive as possible. Once you have established a positive cash flow position, the ideal goal is to stay there.  But there are a lot of things that can change the cash flow of your business, some of which are completely out of your hands. Customers not paying on time is one of the biggest cash flow issues small businesses face. This is quickly followed by simply running out of money – even if you are technically in profit. But it’s not all doom and gloom – the key to keeping your spending in check and money in the bank is simply to forecast your cash flow.

How Do I Forecast My Cash Flow?

Forecasting your cash flow is actually relatively simple. All you need to do is write down all of your costs, and all of the income you expect to bring in and when they will happen over the period of your forecast. For businesses who have been in business a while, this is an easy task, because you have the sales data from previous years to compare it to. For start-ups it a little more complicated, because you can’t be sure of what your costs and sales will be. Sounds simple, right?

The first step in creating your own cash flow forecast is creating a sales forecast. This is essentially a plan of everything you expect to come into the business over your chosen period. This is usually broken down by month, so that you can keep a closer eye on what’s going on and adjust your spending if sales aren’t going as well as predicted. You should then plot out when you expect that money to hit your bank account, so that you can see if you will be going into the red at any point.

Then you need to forecast your costs. This is every single penny that you know will be going out of your business, and more importantly when it will be going out. This will include things like cost of sales, operational costs, asset purchases, salaries, VAT payments and more. Once you have this down, you can compare it to the income you expect to receive. Everything you’ve just written down can be simply divided up into ‘inflows’ and ‘outflows’. So at a basic level, you will have:


  • Product/ service sales
  • Asset sales
  • Loan drawdown or other investment capital


  • Operational costs and salaries
  • Cost of sales
  • Asset purchases
  • Loan repayments
  • VAT

Once you have added all of this together should be a forecast of the balance in your bank account at the end of each month. So now, you have all the information you need to create a cash flow forecast – you’ve just got to put it all together! Many businesses will opt to use spreadsheets to manage their cash flow forecasts, or free cash flow software that can be found online.

At Debtcol, we specialise in helping businesses with certain aspects of their cash flow. Our customers cite client late payments as their number 1 reason for bad cash flow, resulting negative impacts on their business. Our debt collection services offer business owners a simple way of ensuring they recover money owed to them quickly, and put plans in place to ensure their customers pay on time in the future. For more information about how you can improve your cash flow with debt collection, get in touch with our team today.

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