How to create an 18-Month cash flow forecast for your usiness

What is a cash flow forecast and why do I need one?

A cash flow forecast estimates how much cash your business will generate and spend over a future period of time. Doing this over an 18-month timeframe allows you to anticipate cash shortfalls well in advance and make adjustments to prevent problems.

But why 18 months specifically? By forecasting a year and a half ahead, you can spot potential cash squeezes early enough to take action. An 18-month cash flow forecast also highlights upcoming large payments like quarterly VAT bills so you can prepare.

How can an 18-month cash flow forecast help my business?

Creating an 18-month cash flow forecast serves several useful purposes:

• Identify future cash shortages – By forecasting further ahead, you can spot potential cash flow squeezes or losses early enough to take action.
• Prepare for big payments – An 18-month view highlights upcoming large payments like quarterly VAT bills or loan balloons so you can prepare.
• Decide timing of investments – Know whether you will have enough cash to purchase assets, hire staff or fund other investments at certain points.
• Improve decision making – With data about upcoming cash positions, you can make informed decisions about whether to take on new projects or credit.

What does an 18-month cash flow forecast template include?

An 18-month cash flow forecast breaks down all sources of your business’ cash inflows like sales revenue and compares them to estimated outflows like paying bills, payroll, taxes and other expenses.

This gives you a projection of your cash position over each month for the next 18 months.

How do I create an 18-month cash flow forecast?

Follow these steps to build your own 18-month cash flow forecast template in Excel:

Step 1: List Cash Inflow Categories

Start by listing all sources of cash your business receives under Income. Common categories include:

• Sales Revenue
• Service Income
• Rental Income
• Interest Income

Step 2: List Cash Outflow Categories

Next, list all types of cash expenses your business pays out under Expenses. Some examples:

• Cost of Goods Sold
• Rent
• Payroll
• Taxes
• Loan Repayments
• Insurance
• Utilities

Step 3. Make Inflow and Outflow Assumptions

Plug in realistic estimates for each cash inflow and outflow your business expects over the next 18 months. Base assumptions on current financials and records, factoring in projected growth or seasonal changes

Step 4. Build 18-Month Cash Flow Forecast

With your assumptions handy, populate the 18-month forecast. Formulas will automatically calculate your projected cash flow each month. Continue adjusting assumptions as new information comes in to keep the forecast accurate.

What can I do with my 18-month cash flow forecast?

Once complete, your 18-month cash flow forecast clearly highlights periods expecting strong or negative cash flow.

You can use this intelligence to:

• Better manage cash reserves
• Adjust business plans to minimise cash flow gaps
• Time large purchases and investments
• Decide whether to take on new business or credit
• Identify problems early to implement solutions

In short, building 18-month cash flow forecasts is crucial for making wise financial decisions and maintaining stability even as business conditions change.

At Ballards we are experienced in providing support for creating efficient forecasting tools and systems for your business and so get in touch with Ben Allman on ben.allman@ballardsllp.com for more information.

Disclaimer. This article has been prepared for information purposes only. Formal professional advice is strongly recommended before making decisions on the topics discussed in this release. No responsibility for any loss to any person acting, or not acting, as a result of this release can be accepted by us, or any person affiliated with us.