A Cash Flow Forecast is the projection of cash inflows and outflows of the business. It estimates all cash receipts, payments, income and expenses typically over 12 months, or for shorter periods such as a week, month, or quarterly. The Cash Flow Forecast can also help build an annual budget for the company. Using these reports will help you manage your cash effectively and will allow you to take a proactive approach when making decisions about your business, especially during a prosperous or downward time. The warning signs that the Cash Flow Forecast provides will prompt you to come up with better decisions when dealing with cash shortfalls and initiating short term investments for cash surpluses.
Running the Cash Flow Forecast
There are many accounting systems that have an option to run a Cash Flow Forecast. One of the systems that many small businesses use is QuickBooks. You can run the report by going to Reports then to Company & Financial and then select Cash Flow Forecast. Under the Dates tab, you can select how often you want to run the report. If the defaulted times listed do not match to what you need you can customize the range by hitting the Customize tab.
QuickBooks presents the data in weekly intervals, however on the customize tab you can select the time interval to be shown as weeks, months, quarterly etc.
Analyzing the Cash Flow Forecast
The report is made up of 5 columns: Accounts Receivable, Accounts Payable, Bank Accounts, Net Inflows and Projected Balance. Accounts Receivable will show the cash flow you are expected to receive from prior invoices. This will allow you to help project the cash inflows.
The Accounts Payable will show the bills the business is obligated to pay. The Bank Accounts will show the net change of money coming in and out of each bank account. This number is calculated by taking the net of payments and deposits after the report start date.
Net inflows are the net of Accounts Receivable, Accounts Payable and Bank Account columns. The Projected Balance takes the beginning projected balance and adds the Net Inflow for the following period to calculate the ending projected balance.
For clients that do not pay on time, you will want to adjust Accounts Receivable accordingly when running the Cash Flow Forecast. In order to do so, go to the report and type in the number of days payments are delayed in the “Delay Receipts” tab.
Cash is the major component that sustains a business. Being able to get a handle on the inflows and outflows will only improve your company’s financial health increasing its chances of thriving in a competitive industry.
By: Andrea Tupper