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Tips for Creating Your First Cashflow Forecast

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by Startacus Admin

creating your first cash flow forecast

Creating a cashflow forecast is integral to maintaining the financial health of your business. If you don’t keep an eye on the money coming in and going out, and keep at least one step ahead of it, you could find yourself in hot water. They can take some time to put together but, in the end, it’s worth it.

So here are some tips to think about if you are creating your first cashflow forecast. 


Start with your projected weekly or monthly sales. If this will be your first year, you can use industry standards or the performance of a similar business to estimate your income. If you have been in business for a year or more already, you can look back at previous years’ books to help with your estimate - the more years you can look at, the better, obviously, but since this is your first cashflow forecast, you probably won’t have many years under your belt. Equally obvious is that performance won’t always be consistent, and (if you’re doing things right) things should be getting better each year from your business’s launch, so don’t forget to take that into consideration.

Also take into the equation things that are both consistent and also cause seasonal cashflow highs and lows - such as a Christmas sales boost - as well as one-offs, such as a trade show, or that time Ryan Gosling was seen using your product and sales went through the roof for a month.

Estimating your income is almost a tips article in itself, as there can be a lot of contributing factors to consider, depending on your type of business. Will a business competitor enter or drop out of the market? Are you launching any new products? Starting new marketing campaigns? Have you secured the support of a well known person or company? All these things and more can allow you to increase, or force you to decrease, your numbers.


Since we’re not just interested in what is flowing into your business, you’re going to need to estimate your outgoings too. This can be done in the same way as your income. Some costs will be fixed, such as rent, web hosting, paying tax and staff wages, while others will be variable. Some variable costs will be related to your income boosts and one-offs - for example, if you are going to a trade show, it will probably cost you money to get there, to print off marketing material, etc. If the sale of your products or services also costs you money, which it likely will, use your income forecast to estimate these costs.

Basically, you are doing the same as you did with the income estimate - identifying definite outgoings and estimating others, using previous years’ books where possible.

creating your first cash flow forecast

Payment method

You need to take into account the method by which you are usually paid. For some businesses, such as online or offline retailers, payment will be immediate, by cash or card (maybe even by that cheque thing people used in ye olde days). Most businesses, however, will not receive immediate payment - particularly service-based ones. If you neglect to take into account the 30- or maybe 60-day payment term (or even late payments), your estimates, and therefore your forecast, will be severely wonky. Make sure to apply this to outgoings as well - perhaps you went for a long-term payment plan for furnishing your office with new computers, for example.


It is very important to remain realistic when it comes to cashflow forecasting. It’s fine to dream big and aim high, but your cashflow forecast is there to help you ensure your business doesn’t crumble under unexpected financial pressure; it’s worthless if you haven’t been realistic in its creation. Err on the side of pessimism rather than optimism with a forecast.

Remember the little things

Don’t leave any income or expenses out of the forecast just because they are little. If every sale is later followed up by a hand-written thank you card, for example, make sure to add the cost of the card and the postage to your forecast. A startup will, in many cases, be treading a fine line between profitability and bankruptcy for the first while, and neglecting to take into account the smallest costs could be a disaster, particularly if you are using your forecast to budget.

creating your first cash flow forecast

The forecast

When you have thorough, realistic estimates for your income and outgoings, it’s time to put it together into a consolidated forecast. If applicable and useful to you, start with an opening bank balance, and then simply add in your income, minus expenses. It might be useful to start with a weekly forecast, and then expand it to larger periods once you see how accurate you’re being. 

Make a copy of this forecast and update it throughout the period with your business’s actual performance. You’ll later be able to see how well (hopefully) your business did versus your projections, and this will be useful when it comes to your next forecast.

The multiverse

There is a theory that every possibility is a reality in another universe. In one, your business might take off and become the next Apple. In another, it might hit financial troubles and collapse within a month. Who knows what this universe’s future holds for your business? Making three versions of your forecast could help you ensure that it is a positive future. One version could be optimistic, increasing sales by about 20%, while the other could be pessimistic and reduce sales by 20%. If this 20% loss ruins your business, what will happen? 20% isn’t impossible, and if it sends a chill down your spine to see, then it would be a good idea to see how you can go about ensuring that a 20% loss would not be The End.

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Published on: 14th November 2016

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