What is a cashflow forecast and why do I need one?
What is a cashflow?
A cashflow forecast is an estimate of the money that you have coming in and going out of your bank account over a period of time. This is an estimate of what your future bank transactions will be. Looking in to the future to understand where your business will be in 3 months, 12 months and 2 years.
What is included in a cashflow?
A cashflow will include the estimated sales that you will be making over the cashflow period. This can be taken from a few different places. What you are making now and projecting this forward, or looking at what projects and work you have booked in over the next few months and showing that in your cashflow.
What expenses are included?
The cashflow would look at the expenses that you are currently paying like your wages, office rent, software and materials, equipment and professional fees. These would be projected forward based on what you are currently spending and what you would need to spend to meet your work requirements over the cashflow period.
What about the taxes in a cashflow?
Once the cashflow is updated with the sales and expenses the taxes can be added in to the cashflow to build a complete picture on where your business will be in the next 3 months, 12 months and 2 years. The VAT, Corporation Tax and Payroll taxes can be added to show the money that you need to pay to HMRC.
Why do I need a cashflow?
A cashflow is essential for planning for your business. What money you need to save to pay the bills and taxes. What staffing requirements you have to meet your deadlines. What taxes you need to pay. What you have to do to make sure that your business gets through the next 12 months and can thrive. If you are serious about growing your business you need to plan and you need a cashflow to plan from.