Project hints & tips: preparing a cash flow forecast

Notes on preparing a cash flow

A cash flow forecast is a standard tool to help organisations plan and manage their income and expenditure.  It is a normal part of any business plan for both commercial and non-profit companies.  A forecast normally covers a 12 month period – but it is good practice to up-date this on a monthly basis with the actual amounts, once you have got the basic information the updating of the cash flow is relatively simple and a really useful tool for business planning. For your LEADER grant it shows us when the ‘outputs’ from the project will occur e.g. increase in sales.

 

Step 1

  • First, gather your bank statements and records for your last financial year.
  • Go through each month and work out what money went in and out of your accounts in that month. Record the amount of income received and expenditure paid out in the month by category/type of expenditure. Your accounts may already have this information in them.
  • Add rows to the cash flow statement if necessary to account for all of your income and expenditure

 

Do this exercise in some detail – even if this is tedious, this will be the worst of it.  Remember that you are accounting for the month in which money actually left or entered your accounts.  And not when an invoice was received or issued.  The result is that you will get a picture of the last financial year. Use last year as a template for the cash flow moving forward.

 

Step 2

Now think about forecasting for the future.

 

  • What differences in income do you expect? And what differences in the timing of income do you expect?
  • Look at your expenditure. What changes are you expecting in your expenditure?  And what differences in timing do you expect?

 

Step 3

Once you have your forecast income and expenditure,

  • You need to include the opening cash balance amount as at the beginning of the year as a starting point for the month in your cash flow statement. The LEADER template should then automatically update the closing balance and other totals.

By Jessica Saunters, Project Officer for the Northern Dorset Local Action Group