12 Steps to Maintaining a Cash Flow Forecast

Wouldn’t it be nice to consistently have 13 weeks foresight of your business’ cash position?

A cash flow forecast can provide this perspective, but only if it’s updated on a regular basis.

In my experience, creating a cash flow forecast is relatively easy; but keeping it up-to-date requires discipline and a systematic approach.

Meet Jeff, who recently created a cash flow forecast for his business in response to a declining cash balance.

Jeff wanted to prove to stakeholders that although cash was tight, the business was capable of recovering and moving on to better times.

He presented the cash flow forecast to his stakeholders, and all parties were relieved to see a forecasted increase in the cash position.

A month passed and then a supplier asked Jeff whether the business had achieved its forecast. Jeff was stumped; he had no idea and had filed the cash flow forecast away assuming its purpose had been served.

Determined to restore stakeholder confidence, he dug out the cash flow, but after a glance was overwhelmed with no idea where to start, what to update and how often!

So how do you maintain a cash flow forecast?

12 Steps to Maintaining a Cash Flow Forecast

  1. Ensure your cash flow forecast is set up correctly – read Elizabeth Mawby’s blog How Do I Create a Cash Flow Forecast?
  2. Post all collections and sales invoices for the prior week to the debtors’ ledger
  3. Post all payments and creditor invoices for the prior week to the creditors’ ledger
  4. Reconcile bank balances and check closing cash balances in the cash flow forecast
  5. Reconcile receipts and payments, and hard code those into the previous week
  6. Complete Actual V Forecast for the past week
  7. Run updated aged debtor and creditor reports and drop them into the cash flow forecast
  8. Review formula driven figures and consider whether formulae are correct or should be replaced with hard coded values. Generally hard coded information is better for past figures, and formulae are better for totals and forecast information.
  9. Review/update timing of collections and payments (for top 10 by value, and group all others)
  10. Extend cash flow 1 week and update totals and checks
  11. Scrutinise weeks where the forecast shows cash flow will be tight, and consider options to manage cash flow through those periods
  12. Discuss cash flow forecast with key external stakeholders where necessary.


Benefits of Maintaining a Cash Flow Forecast

Maintaining an accurate forecast ensures that you are prepared to manage unexpected events as they arise. A 13-week cash flow forecast should be updated weekly on a Monday morning.

Reviewing actual receipts and payments to forecasts on a weekly basis also improves your understanding of the factors contributing to variances in performance, and may identify items that were accidentally omitted.

A reliable cash flow forecast for the coming 13 weeks will help you identify and manage any tighter cash periods.

Ultimately maintaining a cash flow forecast will ensure you have a reliable view of your business’ cash requirements, allowing you to make informed decisions and move your business in the right direction during tough times.


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