Developing a cashflow forecast

Your budget is very important - it will give you a sense of whether your business is viable or not. Once you've done your budget, you can do a cashflow forecast - which will give you an idea of how the cash will flow in and out of your social business.

Many businesses fail because they can't make enough money - in other words there's a problem either with their sales, their margins or their overheads. A lot of other businesses fail because they run out of money - which if you think about it, can be a bit different.

You might have a great GPM, and sales might be strong, but what happens if your customers pay you a month after you've delivered the goods? Or what happens if you need to buy a load of stock, three months before you'll sell it? If you haven't got cash in hand or money at the bank, it doesn't matter how good you look on paper, you'll be struggling. That's why a cashflow forecast is so important.

We've included a cashflow template below. You can also get one here at the Business Link site - click on the link on the right hand side of the page. You'll need to adapt it for your circumstances, but the basis format is there. The main things you want to know are:

• How much cash have I got at the start of each month?
• What's due to come in each month?
• What's due to go out each month?
• How much money have I got at the end of each month?
• When might I need to take action - eg get an overdraft, review payment terms, or hold a sale to get rid of some old stock?

It's frustrating to got out of business because you can't make it pay. It's even more frustrating if you're basically sound - but have got cashflow problems. So it's worth taking time to do a forecast - and to keep revisiting it.

Your Bank wants you to be in business - so if you go to them in December and say "In February I'm going to need a £2000 overdraft", they'll probably listen. If you go to them on February 2nd and say "I need an overdraft today", they'll probably give you a harder time. That's why cashflow matters.

Download blankcashflow.xls

Comments

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