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Build a cash-flow forecast before seeking business finance

A forecast helps management explain not only how much money the business wants, but why it needs that amount and when the cash pressure is expected to ease. business.gov.au describes cash-flow forecasting as a way to estimate future sales and costs and identify shortages and surpluses.

Start with opening cash

Use the actual bank position as the starting point and be clear about restricted or unavailable cash.

Forecast receipts by timing, not invoice date

A sale does not help cash flow until the customer pays. Use realistic collection dates based on actual debtor behaviour.

Include all major outflows

Payroll, suppliers, rent, tax, insurance, loan repayments, leases, equipment and project costs should be included at the period when cash will leave.

Create a base case and downside case

A downside case can show the effect of delayed receipts, lower sales or higher operating costs. It also helps management identify how much headroom is genuinely required.

Document assumptions

Forecasts become more credible when significant assumptions can be traced to contracts, historic trading patterns, invoices, payroll records or management plans.

Sources and further reading

General information only. This material does not constitute legal, tax, credit or financial advice. SME Capital Partners is in pre-launch and is not currently offering or approving credit through this website.