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A cash flow forecast indicates the likely future movement of cash in and out of the business. It's an estimate of the amount of money you expect to flow in (receipts) and out (payments) of your business and includes all your projected income and expenses. A forecast usually covers the next 12 months, however it can also cover a short-term period such as a week or month. The concept of cash flow is quite easy:
Cash flow forecasts can help predict upcoming cash surpluses or shortages and help you to make the right decisions. It can help in tax preparation, planning new equipment purchases or identifying if you need to secure a small business loan.
By including every case scenario in your cash flow forecast you will see how your business will cope if your business hits tough times or does better than expected. Prior warning allows you to work out solutions to anticipated temporary cash shortfalls or arrange short-term investments for temporary cash flow surpluses.
Download the Business Tool: cash flow forecast spreadsheet to guide you through the 3 step process below.
NOTE: Be specific about when the money is due for collection and about the month and the amount your expenses falls due.