Preparing a Cash Flow Forecast for Your Small Business

February 20, 2024
minutes to read
Ben Mensah
Table of Contents

Understanding your business's financial health is crucial, and at the heart of it all is cash flow. While you may be generating profits on paper, it's the actual cash coming in and going out that dictates your business's day-to-day operations and long-term sustainability. In this comprehensive guide, we explore the intricacies of cash flow forecasting— from understanding its importance to a step-by-step guide on creating your own forecast; we've got you covered. And for those looking to streamline this process, we introduce you to Thriday, the all-in-one financial management platform that takes the guesswork out of your financial planning. So, let's get started on mastering your cash flow and taking control of your financial future.

What is a Cash Flow Forecast?

Firstly, our favourite cash flow management system is the Profit First Method but in terms of traditional cash flow forecasting let's get into it

Cash flow is simply the money you've got coming in and going out of your business over a set period, like a month. You can quickly nail this down by looking at your numbers from the last month.

Now, cash flow projection is where you put on your future-gazing hat. It's your educated guess about what your cash situation will look like in the coming month, quarter, or whatever time frame you're looking at. Don't worry; you're not pulling these numbers out of nowhere - you'll use actual data like what customers owe you (accounts receivable) and what you owe for stuff like salaries (accounts payable).

So why should you care about all this? Well, knowing your cash flow and having a solid projection helps you plan better and sidestep any money troubles. It's all about staying in control of your financial game.

Why are Cash Flow Projections Important?

Understanding your incoming cash flow is vital for several reasons:

  • A clear picture of your cash position ensures sufficient funds are available to cover upcoming bills and operating expenses.
  • Being aware of your income aids in setting and achieving future business goals.
  • With a grasp on your cash inflow, you can make informed decisions about your next investment opportunities.

In a nutshell, predicting cash shortages before they happen is the best way to dodge them. And if you see extra cash coming in, you can decide how to make the most of it.

You might be wondering, "Don't my profit and loss statements already give me this info? Why do I need another financial forecast?" Well, here's the deal:

Profit and loss statements, easily generated automatically in platforms like Thriday, are great for showing your profitability, including regular expenses like utilities, rent, and wages - but they don't give you the complete cash picture.

For example, some spending, like buying new assets, won't show up on your P&L but does affect your cash. You could be spending a lot on startup costs like inventory and still look profitable and like things are ticking over well, even if your cash flow is in the red.

The same goes for the revenue side. Making a sale and invoicing a customer shows up as revenue on your P&L, but that doesn't mean the cash is in the bank yet.

Different financial reports give you different pieces of the puzzle. It's by putting them all together that you get the complete financial story of your business. With innovative accounting software solutions like Thriday, you can run your business as usual with bank accounts* seamlessly integrated with accounting and access all the key financial reports needed to give you a clear picture of your business's financial health.

So here's the bottom line:

A basic cash flow projection is essential, and with Thriday, it's easier than ever. The platform classifies your transaction data to provide a detailed view of your actual cash situation - current and projected, helping you make informed decisions and meet crucial financial obligations like employee salaries and debt repayments.

Thriday cash flow statement
Thriday leverages seamless banking* integration and the power of AI to automate the generation of all your key financial reports including real-time cash flow statements and forecasts

Tips for Flawless Forecasting

Use Automation: Preparing a Cash Flow Forecast with Thriday

Let's face it, preparing a cash flow forecast can be a daunting task, especially when you're playing multiple roles as a small business owner. But what if we told you there's a way to make this process as smooth as butter? Enter Thriday—the ultimate financial management platform designed to take the hassle out of your financial admin.

With Thriday, you don't have to be a financial wizard to prepare an accurate cash flow forecast. Our platform leverages the power of AI to automate not only the process of cash flow forecasting but generation of all your key financial statements, giving you more time to focus on what you do best—running your business.

How Does Thriday Make Cash Flow Forecasting Easier?

  • Automated Data Collection: With up to 9 built-in bank accounts and a VISA debit card*, Thriday means all your transaction data is automatically synchronised with the platform, eliminating the need for manual entry or time wasted managing tricky bank feeds. Learn more seamlessly integrating your banking with accounting in one platform here.
  • AI-Powered Analysis: Our advanced AI-driven system categorises and analyses your revenue and expenses to generate and provide all your key financial reports - including an automated cash flow forecast, helping you make informed decisions. Discover the power of Automated Accounting today!
  • Real-Time Updates: Your cash flow forecast and financial reports are updated in real-time as transactions happen, so you always have the most current data at your fingertips.

This all happens easily in the all-in-one Thriday platform, meaning you don't have to juggle multiple app, software and bank feed integrations.

With Thriday, you get an estimated cash flow projection to the end of the financial year, automatically generated and updated in real-time alongside all your other financial reports such as tax estimates with smart GST recognition, income and cash flow statements, balance sheet and more. 

By consistently tracking your transactions with the platform, you'll be able to catch any inconsistencies early, helping you steer clear of expensive errors in the long run.

Why Choose Thriday for Cash Flow Forecasting?

Choosing Thriday for your cash flow forecasting is like having a financial expert by your side, 24/7. Not only does it automate the tedious parts of financial planning, but it also provides valuable insights that can help you grow your business.

So, why spend your weekends crunching numbers when Thriday can do it for you? Make the smart choice today and let Thriday automate your cash flow forecasting. Your future self will thank you!

Thriday all-in-one software
Thriday is an all-in-one financial management platform that integrates all your business' financial data in one place to automate and eliminate financial admin

Avoid the 'Set It and Forget It' Mindset

Cash flow projections aren't a "one and done" deal; they require regular updates.

By consistently revisiting your projections, you can identify whether your initial estimates were accurate or need adjustment. The goal is to spot any deviations early on so you can adapt your financial strategy. 

Whether you discover extra cash that can be invested wisely or a cash shortfall requiring immediate attention, staying updated is key to effective financial management. 

With Thriday, your financial reports and projections are automatically updated in real-time as transactions happen, making it easier for you to stay on top of your finances.

So, don't just set your cash flow projections and forget them. Keep them updated, and let Thriday's real-time updates assist you in making the most informed financial decisions for your business.

5 Steps to Preparing a Cash Flow Forecast

Thriday is carefully developed to automate and eliminate financial admin so you don't have to burn your precious time reconciling transactions anymore, but if you do want to go the manual route - here are the five steps to flawless forecasting:

1. Kick Off with Your Opening Cash Balance

First, log into your banking apps or financial management platform to find your total cash balance across all your accounts. This figure serves as your "opening balance" for your cash flow projection period. In our example, we're focusing on a monthly projection, so this opening balance is essentially last month's closing balance.

*Pro Tip: With Thriday, you can easily manage up to 9 built-in business banking accounts* in one simple-to-use platform!

2. Tally Up Your Receivables

Next, estimate the cash you expect to roll in for the upcoming month—this is your projected positive cash flow. Remember to include other cash sources, not just sales revenue. Here's where to gather this info:

  • Sales from your products and services (often recorded as Accounts Receivable). Only count amounts due within the projection period.
  • New loans or investments you expect to land.
  • Asset sales you'll be paid for in the upcoming month.
  • Other income streams like interest.

3. Estimate Your Payables

Now, do the same for your outgoing cash. Typical expenses to include are:

  • Employee salaries
  • Rent or leasing fees
  • Software subscriptions
  • Taxes
  • Utilities
  • Insurance
  • Seasonal costs
  • Asset purchases
  • Marketing and advertising
  • Loan repayments
  • License and franchise fees

*Note: With Thriday, your expenses are automatically stored and categorised in the platform, so you can easily review them anytime, anywhere.*

4. Utilise the Cash Flow Formula

Subtract your total payables from your total receivables. The formula is:

Cash flow = Total receivables - Total payables

For example, if your receivables are $26,000 and payables are $15,000, your cash flow would be $11,000. If your payables exceed your receivables, you'll have a negative cash flow.

5. Add Opening Balance to Find the Closing Balance

To find your closing balance for the period, add your cash flow to the opening balance. So, if your cash flow is $11,000 and your opening balance was $4,000, your closing balance will be $15,000. This closing balance then becomes your opening balance for the next projection period, which is especially useful if you're planning multiple months ahead.

And there you have it—five straightforward steps to manually create a cash flow forecast for your small business. While this guide should serve you well in understanding the ins and outs of cash flow planning, let's be real: financial admin can be a headache. 

If you're looking to skip the manual labour and get straight to the insights, Thriday has got your back. Our platform automates the entire process alongside all your other accounting needs, giving you more time to focus on running your business. 

Let Thriday handle the numbers while you handle your business.

Elevate Your Cash Flow Forecasting with Thriday

By now, you should have a solid grasp of why cash flow forecasts are vital for your business. You've learned the ins and outs of creating one and where Thriday can come in to automate away the financial admin, but let's be real—cash flow forecasting is still just one part of your financial puzzle.

For a comprehensive financial overview, you'll need various reports, statements, and projections - which is where Thriday comes in. Our all-in-one financial management platform automates your bookkeeping and accounting to provide real-time updates on all the necessary financial reports and projections so you can know your business better than ever before whilst saying goodbye to manual calculations! 

Are you ready to transform your financial planning experience? Start with Thriday today. Your future self will thank you.

DISCLAIMER: Team Thrive Pty Ltd ABN 15 637 676 496 (Thriday) is an authorised representative (No.1297601) of Regional Australia Bank ABN 21 087 650 360  AFSL 241167 (Regional Australia Bank).  Regional Australia Bank is the issuer of the transaction account and debit card available through Thriday. Any information provided by Thriday is general in nature and does not take into account your personal situation. You should consider whether Thriday is appropriate for you.

Why waste time on financial admin when Thriday can do it for you?

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