Completing a Cash Flow- Forecast for a New Business

A cash flow forecast is about CASH not profit!

Your Cash Flow Forecast shows when cash will come in and go out of your business, it is about cash and not profit, it

shows exactly when your income comes in and exactly when you expenditure goes out.


Completing your first Cash Flow can be a daunting prospect but it is one of the most important pieces of your Business Plan jigsaw. You need to identify when your “hot spots” will occur, these are the times when you are likely to be “strapped for cash”. This is important so that you can plan your finances and, if necessary, arrange extra finance with your bank in the form of an overdraft.

 NOTE: if you are a new business receiving free banking for a period of time (usually at least 12 months), your bank is likely to charge you full bank charges for the whole quarter if your account becomes overdrawn and you have not arranged an overdraft, they will also charge you around 30 each time this happens and probably bounce your checks!

 The Form;

The cash flow form usually shows 12 months of the year and should also include a “pre-start” column if you are a new business. The form is in two sections, the top section usually being reserved for your income and the bottom section for the expenditure (this is usually the larger section).

 There should also be totals at the end of each row and totals and carried forward figures at the bottom of each column.

 Pre-Start Income

This is where you enter your cash injection into the business and any loans or grants you may have secured.

 Pre-Start Expenditure

This is where you enter your pre-start outgoings. This should match exactly your Start Up Costs page from earlier in your business plan.

 Goods are as good as cash

If you are starting your business with existing equipment, tools or vehicle you should consider the “second hand” value of these and enter as if they are cash. This would be done in both sections.

 Example:  you already have a car that you are going to use for the business that is worth around 4000 on the open market. You would add 4000 to your cash injection in the income section and also enter 4000 under transport, costs in your expenditure section


If you are looking for funding from a bank, they will only lend you a maximum of 50% of the total start-up costs, but this does not have to be all cash, they will take existing equipment etc into account (eg your car).

 Totaling pre-start column

So, once you have entered all your input and all your outgoings for pre-start, you should take the outgoings from the input and carry the result forward to the start of business on day one.

 Example: you have put 10,000 into the bank and spent 4,000 on pre-start costs; you will be starting your business with 6,000 in your bank account on day one of trading.

 Predicting your income

This is the most difficult part of the forecast, especially for a new business, but there are ways that you can approach this logically. You need to be as realistic as possible, so you need to find some kind of formula that will work for you.


If you are a tradesman (say a plumber) and you are intending to work 60 hours per week you will probably only earn from around 40 of those hours. The other 20 hours will be taken up by non-earning activities such as giving quotations, travelling from job to job, doing your bookkeeping and visiting wholesalers. Work out your hourly rate

Consider: of those 40 hours maximum earning time, how many are you realistically going to earn when you first start your business and no one knows you exist?  It will take time for people to get to know you, so you won’t be

100% efficient in your earning power for some time, work on a percentage of maximum.


If you are offering a service (alternative therapy, pet psychology, hairdressing) how many clients can you take each day? Work out your tariff or an hourly rate

Consider: how many clients will you get in the first week, second week, etc? How long will it take to get this up to maximum capacity?

 Also take into account:

Special events and holidays that may mean your business will be busier or quieter

Seasonal fluctuations

Your own holidays (if you are going away for 2 weeks in August, does this mean you will only have 2 weeks income that month?)

 Example: A seaside hotel is likely to start the trading year on the Easter bank holiday when they will be very busy but after Easter the business will die down before gradually building up to its peak during school holidays in July and August, in September there will be a slight drop, more in October and November will usually be dire, December will be non-existent except for a rise over Christmas and New Year (if they are open and have special events), January and February may just as well not exist (most of them close down and go away) and the whole thing starts again in March/ April (Easter)

 Other Income:

Don’t forget to include any other income such as grants and loans that may be due to be paid into your account periodically.

 Predicting your Expenditure:

This must be a realistic as possible, don’t think that you will economies, you will only overspend! You need to use as much real information as you can.

Example: You know how much your rent on your premises will be, and you can get estimates from power and telephone companies. Only enter amounts into the months they will be paid.

 Example: If you pay your telephone bill quarterly, you will only have this entered in the 4 months of the year that you pay it, but if you pay your rent every month, you will enter it in every month.


What things cost (find out if you don’t know) How often are you likely to purchase? When are you likely to purchase?

Money for emergencies (if you are running a dress shop and your boiler breaks down, you will have to have it repaired immediately or your customers will freeze!)

Costs that will grow with the amount of business you are doing

 Example:  If you are predicting an increase in sales of Jeans, you will have to purchase more pairs of Jeans before you can sell them.

 Totaling it all up!

Once you have entered all of your information you will need to total each row across and each section of each column down so that you can see exactly how much you will take each month and how much you will spend. The total across will also give you an annual total for each item.

 Example:  You will see that you have predicted that your telephone will cost you 1,200 for the year, your rent will be £4,000 and you will spend 900 on stationery. You will also have individual totals for income for the year such as: income from sales of jeans – 38,000, income from sales of jackets – 24,000, income from alterations service – 8,600.

 The Bottom Bit!

 Cash Flow c/f or Closing Balance c/f

The money that you have in the bank at the end of the month that is “carried forward” to the beginning of the following month.

 Cash Flow b/f or Opening  Balance b/f

The money that you start with at the beginning of the month that has been “brought forward” from the previous month. Balances should form a running total that will show you how your bank balance will look as you go through the year, taking into account each month’s trading and adding or subtracting from the balance b/f before carrying forward to following month.


Month 1                       Month 2                    Month 3


Total Income                                       1000                             1,234                         2,789

Total Expenditure                                500                               1,500                         247

Opening balance b/f                            600                               1,100                         834

Closing balance c/f                              1,100                             834                           3,376

What to do with the finished article

If you have predicted any minus figures you should talk to your bank about arranging an overdraft. This will cost you a one off set-up fee and then you will have to pay interest at the going rate on the amount of overdraft you use for the length of time you use it. If you have predicted any figures that come close to minus, you should also consider this option.




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