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7 Tips To Getting Started With Cash Flow Forecasting


Nobody starts a business for the thrill of managing their books, and chasing people for money. Still, every small business struggles with cash flow from time to time. Below are seven pointers to help with getting your business finances in shape – and hopefully you’ll ride the waves gracefully and get to focus on the business rather than stressing about the bank balance.

1 – Build a basic cash flow model

Make a list of all your recurring costs and income. The number one rule of cash flow planning is to know as much in advance as possible what is coming out of your bank accounts and when.

Here is a list of common outgoing categories to start with:

Salaries / Wages / Subcontractors

Payroll expenses (taxes, insurance, pension contributions etc)

Office costs (things for the business that aren’t for resale) e.g… stationery,

Software (e.g subscriptions to software

IT (computer rental,

Advertising and PR (Google AdWords budgets, etc)

Travel (petrol, trains, meals and accommodation )

Accounting, Bookkeeping and Legal

Rent and Rates

Phone, Mobile and Broadband

Utilities (Water, heat, light and power)

Insurance (employers liability and business)

Taxes or Savings for tax

Bank Charges and Interest

Miscellaneous (always good to put something in for this)

Make sure you include your own drawings or dividends and salary in this. If you leave anything out here, the likelihood is that you’ll spend it elsewhere.

2 – Build your Sales forecast

What invoices are due or overdue? Is there anything that you’ve forgotten to invoice for? What milestones do you need to hit to generate the next payment? Then – what sales have you got in the pipeline? What pitches are you waiting to hear back on?

Factor in the costs of a sale

Make sure you factor in all potential cost of sales and taxes to a potential project straight away (i.e anything that costs you more because you’re doing the job)

So If you’re a web design company – taking on a copywriter or a photographer as part of the project make sure you have those in your forecast – ideally next to the project as on the flip side if the project falls through you’ll want to take those costs out of the picture too.

3 – Are you regular?

The most basic metrics you can run on your cash flow is looking at your bank balances on a regular basis just to be sure. This isn’t a figure you can rely on, but if you check in at a specific time every week, you’ll get an idea of what is “normal”. And how your cash matches up with your expectation. At the end of each month, you ideally want bank account to match your forecast just to make sure you aren’t missing something. This is a really good discipline, and you’ll be amazed at how many times you find something you’d forgotten to factor in.

4 – Setup Saving Automatically


One of the best ways of ensuring you’re ok in a cash dip is to have a pot of savings that you can rely on. Without a doubt the best way to do this is to set up a regular payment each month that goes out automatically into another bank account. This account should be for emergencies only.

Start it off small and as you get more confident in what you can bring in each month, build it up. As a goal £500 a month will give you £6000 by the end of the year. As a rule it’s a great principle to try and save 3 months of no income, so if you have £10k of costs each month. Try and get to £30k before you work on your next pot.

5 – Keep up to date with tax liabilities

In the same way you set up savings for emergencies – if you can afford to its really worth putting aside cash each month for PAYE, VAT and Corporation Tax. Hopefully, this is something your accountant will give you advice on. Or if you’re using a tool like FreeAgent or Iris OpenBooks you’ll get this information in the tax timeline, and can add it straight into your forecast.

6 – Get paid on time!

It’s important to review your invoices and add expected payment dates to them. As much as we’d all love “Terms 30 days” to mean something to our clients – in reality, it means very little. What matters is understanding the payment process for each client or purchaser. Some will need a phone call, some need a Purchase Order before they will pay (and won’t tell you). You have to be proactive here and follow up this week every week. If you’re using an invoicing system like FreshBooks or FreeAgent, its really worth setting up automatic email reminders so you don’t have to do this yourself.

7 – Phasing and Milestones

One lesson someone passed onto me early in business life, was to never start a project without getting some initial payment up front.

This stood us in good stead time and time again. It separates the time wasters from those who are serious, and it works wonders for your cash flow. If you’re running a service based business rather than getting one payment when a job is complete, breaking a project into a number of phases helps to get cash in quickly. It works for the clients too. Also having a milestone like ‘site won’t go live until final payment’ can really help incentivise a larger company to fast-track an invoice rather than leave it to go through the normal channels.

Ultimately get these systems in place and let your focus get back on to doing what you’re actually in business for!

Colin Hewitt

CEO and Founder of Float, cash flow forecasting made easy.