What is a cash flow forecast?

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Cashflow forecasts.

You’ve heard your accountant talk about them before, but it probably sounded like jargon best left to the bean counters without a proper explanation.

However, it’s worth knowing what a cash flow forecast is because the more knowledgeable you are about your company’s finances, the more capable you’ll be monitoring and controlling the movement of money through your business.

So, without further ado, a cash flow forecast does exactly what it says on the tin. It helps you map out how much money is coming into your business over a set period and how much is leaving it to cover your costs. As a savvy trade business owner, you’ll likely know at any given time whether your business is turning a profit. A cash flow forecast helps you extend that knowledge out as far as you need into the future, giving you actionable data that you can use to grow your business with complete financial certainty.

Surely that means a cash flow forecast is pretty technical, right?

Well, yes, but that doesn’t mean you can’t use a cash flow forecast template to skip the tedious process of building one yourself. Below you can find a free cash flow forecast template for Excel and Google Sheets.

We’ve already added some trade business processes to help you fill it in.

Your free monthly cash flow forecast template for Excel & Google Sheets:

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But why use a template instead of building a cash flow forecast from scratch?

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The importance of a cash flow forecast template

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Building a cash flow forecast from scratch takes time and requires knowing a bit about Excel or Google Sheets. A cash flow forecast template, on the other hand, comes pre-packaged and ready to go. All you need to do is change the wording for what’s being tracked and enter your business financials in the labelled boxes.

If you’re determined to create a cash flow forecast template from scratch, we’ll include instructions on setting one up toward the end of this article.

But for now, let’s talk about what you need to input into the cash flow forecast template we’ve provided above.

What’s included in our monthly cash flow forecast template:

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Cash balance

Your ‘cash balance’ refers to how much liquid capital you have on hand at the start of a month. It’s relatively easy to calculate this figure. You need to add all the available capital your business has at the beginning of the month and present the number you end up with on the forecast.

Revenue

The Revenue section is where you’ll need to input all your income figures. Whether your trade business is spread across servicing, product provision or somewhere in between, you’ll need to include all sources of income in this section.

Make sure to sum all your sources of revenue for any given month and add the number to the Total Revenue section. This will help later when filling out other sections of the cash flow forecast template.

Gross Profit

Gross profit refers to your profit margin after accounting for the various costs of selling your goods or services. It’s easily calculated by subtracting your Cost of Goods/Services Sold from your Revenue.

Make sure to add your Gross Profit Margin as a percentage under the Gross Profit figure. You never know when a profitability percentage might come in handy for reporting on your business or explaining your business’ financial situation to other parties.

Expenses

Next, it’s time to fill out the Expenses section of your cash flow forecast template. We’ve included a section for both Fixed Costs and Variable Costs in the cash flow forecast template. Make sure to include all relevant expenditures, or your cash flow won’t properly represent your actual business expenses.

After adding your Fixed and Variable Costs, sum them up in the Total Costs section for use later on in your Closing Balance.

Net Profit Margins

Net Profit Margins illustrate how much of each dollar in revenue collected by the company translates into either a profit or a loss.

For reference, the acronym ‘EBITDA’ stands for ‘Earnings Before Interest, Taxes, Depreciation, & Amortization’ on the cash flow forecast template. It sounds like a mouthful, but all it really indicates is how much money you’ve made before the costs of running a business take a bite out of your profits. Add any additional costs or financial gains to this section, as it’s one of the most important indicators of your business’s financial health and a critical component of a useful cash flow forecast.

Closing Cash Balance

At the end of each period (Per Month in the case of our cash flow forecast template), you’ll need to sum your Net Profit/Loss and adjust your Closing Cash Balance (the total amount of liquid capital your business has).

While filling in your Closing Cash Balance, take the time to make sure that the rest of the cash flow forecast template is filled out and correct.

Why it’s important to know your running cash flow

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If you’re looking to secure a bank loan or some outside investiture, then your cash flow forecast will come in handy for calculating a running cash flow that you can present to outside stakeholders to prove your business’s financial viability.

A running cash flow also acts as a health check for your business. If money is quick to move out of your business and slow to come in, you may have underlying issues with operations or even pricing that need addressing. You can also use your running cash flow to check for seasonal variations in sales across the year or even whether your costs rise in the winter but fall in the summer.

How to create a quick forecast cash flow in Excel

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In case you aren’t keen on using our free cash flow forecast for Excel and Google Sheets, we’ve included a simple five-step process for creating one in Excel below:

Open Excel and create a new Blank Workbook.
Create columns for each month you plan on running your forecast.
List all the necessary categories (use our monthly cash flow forecast template as a reference if needed), including Revenue, Gross Profit, Expenses, etc.
Populate each section with your financial data
Sum all finances and create Totals for each section

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Conclusion

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Cashflow forecasts sound like a headache, but with a bit of accounting know-how and a quality monthly cash flow forecast template, you’ll find it easy to create and maintain detailed records of how money moves in and out of your business.

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