Do I Need A Cash Flow Forecast In My Business Plan?

This is a question commonly asked by freelancers and small business start-ups. Often, their reason is they don’t know how much they’ll make yet, or maybe they won’t even make anything at all! But sometimes, some people are unsure what a cash flow forecast is, what its purpose is – or how they can build one. 

Taking into account that about 80% of businesses that fail cite the issue as being cash flow issues, it makes a cash flow forecast essential. While having everything mapped out in front of you might not save your business, it will give you some guidance as to what your finances should look like (and a visual can help you pull the plug earlier if you need to). 

So, let’s take a look at why you need to create a cash flow forecast for your business. 

What is a business cash flow forecast? 

A cash flow forecast is an estimation of how much money will come in and out of your business over a set amount of time. Typically, the more data you have, the more accurate the cash flow will be. And, following that with accuracy comes better planning. 

It is not difficult to get started with a cash flow forecast, and you can look for examples online that are in your industry and for a start-up or a freelancer, too. Keep in mind you may need to adjust the figures based on your own pricing model and niche. 

All you’ll need to get started is a few hours of time, a notebook and pen, and some of your accounts (if you have some), your pricing model and a cash flow forecast template.

Why is a cash flow forecast important to a start-up? 

Almost all business mentors, consultants and growth professionals will talk about the importance of a cash flow forecast for a business just starting out. Managing the cash coming in and out of your business is one of the ways that you ensure a healthy financial future for your business. 

But it helps with making decisions like pricing, how many clients you need/want, when you can take a break, when hiring is possible, and spotting issues before they have the chance to make an impact. 

Another reason that charting your finances is important is that if your business is going to need financial injections, a cash flow forecast is what you will use as part of your application or bid. 

Read more about financial support for your business: Why You Should Raise Money For Your Startup | MarkMeets | Entertainment, Music, Movie, TV & London Film Premiere News.

Scenario Planning

There are multiple scenarios that you can play out with your cash flow forecast. 

• What if you only manage to have two clients for the year?
• What if you have 5-10 clients? 
• What would happen if your clients paid late?
• Is there room to lower your monthly outgoings – what would that look like? 
• What is your ideal cash flow, including gaining clients over the period?
• What would it look like if you lost one or two clients? 

Going through all of these scenarios gives you the strongest set of information to work with going forward and can help you plan some backup plans and understand how much you ideally need to save to get you through any loss of clients or financial issues. 

Investing 

The further along you get in your business journey, the more likely it is that you will want to make additions and upgrades to what you do and the tools you have now. With a cash flow forecast, you will be able to see the moments that you can invest in coming up. 

And it can also stop you from making investments too soon, which may cause an issue in the following months. 

Planning your investments will mean you can plan your marketing and strategy along the way. For example, if you will be investing in a new tool or product to improve your work or increase your offers – you can create a marketing plan to lead up to it. 

Bottlenecks 

Bottlenecks are frustrating for all companies because when you don’t see them coming, it can feel like you won’t get beyond them. Bottlenecks in start-up companies tend to be a lack of money, poor time management, not enough focus on the work at hand (listening to the noise and listing track and control), not networking enough, pushing for growth ahead of sustainable income. 

A cash flow forecast can help to prevent many of the bottlenecks but highlight ideal times to seek financing, when to liquidate assets when hiring is possible and more. 

While a cash flow forecast is important, it isn’t infallible, so make sure that you use it alongside the other areas of your business plan for the best result.