Each month, your cashflow forecast chart will give you a prediction of your bank balance month by month into the future.

How do I read the chart?

The line is the important element – that is the prediction of the bank balance. It will give you warning of potential problems. If it’s going below zero, it suggests that if things stay the same, you’ll run out of funds soon.

The bars on the chart represent the different components of your cashflow. Income and expenses will be the main ones (and possibly cost of sales). Liability movements are likely to be tax payments.

Why do I need to forecast cashflow?

The benefit of predicting your cash balance is that you can act early and consider your options:

  • Increase Income: Can you do something to give a quick boost to sales? Be wary of discounting though as that may have negative impacts on your bottom line.
  • Cut Costs: Are there expenses you can reduce or defer? When doing this think about both the short-term and long-term effects – it’s not easy or cheap to replace lost staff, for example.
  • Improve Debt Collection: Can you improve your processes for collecting quicker from your customers?
  • Better Credit Terms: Can you negotiate longer terms with your suppliers? This can help in a short-term fix but you should aim to get back to normal quickly so you don’t damage relationships.
  • Get Good Advice: Work with your accountant and bookkeeper. They will likely have tools to give more detailed forecasts and to look at different scenarios.
  • Get a Loan: As a last resort, when you need to go to your bank for a loan, you can go well-prepared with good reports that will show them where you have been and where you are heading.

What bank account does it use?

We’ll start by using the default account from your accounting system. If that hasn’t been set correctly, or you have more than one trading account, sign in to The Invisible Accountant and make changes in the Financial Settings.

What are the limitations?

All forecasts and predictions of the future are based on assumptions and are limited by those assumptions. The major assumption of our forecast is that, for your business, the next 12 months will be very similar to the last 12 months. It will consider the seasonal fluctuations, assuming they won’t change much from year to year. This is reasonable for many businesses, but not for all. If your business is growing rapidly, or is in decline, the underlying budget will be unreliable. In this case, you need a more flexible reporting system such as Calxa which allows you to change budgets, manage different scenarios and gives you a full range or reports.