Money is the lifeblood of every business and a lack of it is the most common reason for failure. Regardless of your business size, it’s important to draw up accurate and up-to-date forecasts, with realistic expectations of when cash will come in and out, what sales you’ll make and what profit this will generate.

Forecasting also allows you to plan for the ‘what ifs’. For example, what if I launched a new product, recruited additional staff or rented larger premises? A thorough forecast sheet allows you to easily adapt your figures to see whether you can afford it and how it would impact finances.


  1. Be realistic and honest

It’s better to be realistic, sometimes even pessimistic, when cash flow forecasting. Doubling your advertising spend, for example, won’t necessarily see your sales jump from £1.5m to £4m and could result in negative implications as costs rocket, yet sales remain stagnant.

Rising inflation also makes it difficult to predict whether costs will remain the same in another 12 months. Utility bills, for example, can vary seasonally and a sudden sharp riles in sales could mean a need to hire more staff to meet increasing demand.


  1. Differentiate income and cost

Remember that an invoice doesn’t necessarily mean immediate income or an expense equal an instant cost. An issued invoice may have a 90-day payment term meaning you’ve three months to wait until the money is available. Likewise, if you pay for a new piece of IT equipment on your credit card, then the financial impact on your bottom line may not be immediate due to delayed repayments. A detailed forecast should show the money available in that exact month and when cash is due to enter and leave your bank account.


  1. Include every item

A missed expense here or there is unlikely to impact your bottom line but 12 months of these incidents can soon add up. An unexpected HMRC payment, for example, can severely impact your finances and quickly spiral out of control if the deadline isn’t met.


  1. Plan for every possibility

Much of your cash flow forecasting is guesswork, which is why you should plan for at least three eventualities. The first should mirror last year’s sales figures, with another scenario at 20 per cent higher sales and a third with 20 per cent lower sales.

For example, a business with sales of £1.5m and operating costs of £950,000 would make a healthy profit of £550,000. With 20 per cent higher sales, profit would increase to £850,000, yet 20 per cent lower sales would see profit dip to £250,000.


  1. Consider seasonal fluctuations

The most important function of a well-designed forecast sheet is to identify seasonality and plan your finances accordingly. Agricultural and retail businesses, in particular, can be hit hard by seasonal fluctuations. A forecast sheet will help to plan available expenditure when income is at its lowest and allow plenty of time to implement a contingency plan, should cash flow begin to look unhealthy.

Asset finance is one of the best methods of boosting cash flow and ensuring your forecast sheet remains positive for the future ahead.


Our bespoke solutions at Praetura Asset Finance allow businesses to release capital to assist with cash flow challenges, including HMRC debt, as well as investment and growth.