Why use a cashflow forecast?
The cash flow forecast is of fundamental importance to your business as it assists you to evaluate the timing of money coming into and out of your business. In showing you the 'movement' of money it takes into full account the fact that you may often not be paid immediately for work done and, correspondingly, that you may not have to pay immediately for goods and services you require. Another important aspect of a cash flow forecast is to reveal the gap between your cash receipts and payments. It will identify whether or not you may need to borrow and if so when you are most likely to require additional funds.

In summary focusing in detail on the cash flow forecast can provide the following information.

1. ldentify potential cash shortfalls before it happens.
2. Enable potential surplus cash to be identified and used efficiently.
3. Ensure that adequate cash is available for necessary capital expenditure.
4. Encourage more efficient use of resources and to reduce cost.

Activity 1
A simplified cashflow is is provided below to allow you to see how a cashflow forecast is produced. (In the real world you would split the year into 12 months instead of 4 quarters and breakdown the items into smaller categories.)

Try entering information into the income and expenditure tables (coloured pale blue) Each time you enter a new value, other numbers change:

1. The annual total for that item
2. The monthly total for expenditure or income
3. The cash movement for that quarter
4. The closing balance for that quarter
5. The opening balance for the remaining quarters of the year