Cash Flow Forecast: Understanding Your Numbers

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Cash Flow Forecast: Understanding Your Numbers

A cash flow forecast is frequently seen as the most important financial tool for growing your business. When done well, your cash flow projections will help you understand whether your business is going to have enough working capital to keep operating and growing at the pace that you want it to.

It's one of the ways businesses can look ahead and plan for continuity, with cash flow statements being one of the 3 key financial statements you need to be aware of as a business owner.

What is a Cash Flow Forecast?

A cash flow forecast looks at your projected accounts receivables and accounts payables. Forecasting cash flow helps businesses understand where and when they might run out of cash, bringing clarity to the future of the company.

  • Account Receivables: It is important to consider how quickly your clients generally pay you and consider the possibility of a percentage of missed or late payments.
  • Account Payables: Payables are easier to gauge. You’ll need to accurately track all upcoming payments.

One mistake some business owners make is to overestimate their ability to collect on receivables. When you’re forecasting, it is important to be as realistic as possible, and keep in mind that it’s still an educated guess.

These projections are not a guarantee, so building in different scenarios – or scenario planning – is a useful tactic for evaluation. Consider your best case vs your worst-case scenarios. You might be surprised how varied your projections may be.  

A cash flow forecast will also incorporate your forecasted operating expenses. Keep in mind that non-cash charges like amortization do not get included in the cash flow forecast as these are, as the name implies, non-cash items. While non-cash charges are excluded from the forecast, it is important to provision for longer-term cash expenditures such as GST/HST payments in your forecasts. 

We have seen companies try to use a projected cash flow statement as a cash flow forecast. This can create challenges. The format of the cash flow statement prepared by accountants tends to be less user-friendly to non-accountants, especially the indirect method of the cash flow statement. 

The indirect method records payments when the goods or services are provided – not when the payments are received – which could result in an inaccurate estimation of the future cash inflow.  It would be best to not mix these two documents and prepare a cash flow forecast that is used solely for planning purposes.  

How Can I Generate a Cash Flow Forecast?

There are a few ways to generate a cash flow projection. If you are an Enkel client, this is something we can help you with. If you’re doing it yourself, there are a few tools you can use:

Accounting Software

If you’re using accounting software for bookkeeping, some will offer you the ability to create a cash flow projection using your data. These tools are generally simple, and not the most accurate projection tools you can use. However, if you are just beginning to grow your business, this will be a good starting point.


Float is a tool that offers cash flow forecasting and scenario planning, and integrates with cloud-based accounting software like Xero and Quickbooks Online. Float exports data from your accounting software, which is great if you want to run different scenarios or have a complicated cash flow forecast. You’re also able to input your current budgets, and then track your progress against them.

Excel Templates

Projecting your own cash flow forecast within programs like Excel or Google Sheets is a good way to spend some time getting intimate with your financial data. It’s important to be vigilant any time you’re setting up a model manually as it leaves a lot of room for human error, and beware that the continuous upkeep of these documents can be time-consuming. If you’re set on projecting your cash flow with these tools, free templates available on both Microsoft Office and Google Sheets.

What Can I Use My Cash Flow Forecast For?

If you have your cash flow forecast ready to go, let’s review how you can use your financial data to help plan for your future.

Identifying Potential Shortfalls in Cash Balances in Advance

Having enough cash to manage your business is critical for success. You need to be able to pay your expenses, manage employee payroll – and of course, pay yourself – and know what you have for investing in growth activities. By forecasting, you’re able to spot potential shortages far before they become problems. 

When it comes to surpluses, it’s always good for businesses to have extra cash on hand. Sometimes when it rains, it really pours, so having some extra money in the bank will help you get through tough times. 

But if the money is piling up without any planning on how you’ll reinvest it within the company, you may be missing out on opportunities. You could invest in developing or launching a new product offering, expand your marketing programs, hire new talent or pay dividends.

Prepare for Seasonality Fluctuations

If your industry is one that experiences more extreme busy and quiet seasons, you’ll definitely want a forecast to prepare. It’s common for seasonal businesses to experience fluctuations—for example, ski resorts are busier during peak winter season and slower during the summer. 

You can use your cash flow forecast to budget your expenses for slower months and know how much earnings you’ll need to set aside to cover these expenses. 

Apply for a Loan

When you apply for a small business loan, you’ll need to come prepared with your financial reports, but a cash flow forecast is also an extremely valuable tool. You’ll come across as forward-thinking and prepared, plus lenders will get a better understanding of your growth potential. If they buy into your growth story, they will feel more confident in lending you money.  

Reduce Operating Costs

Forecasting can also help you spot opportunities to reduce operating costs. Are your employees generating enough revenue to justify their salaries? Is your business really ready to expand into that second location? Your cash flow forecast is the closest financial tool you will have to a Magic 8 Ball.

The first step to building an accurate cash flow forecast is to have an up-to-date set of books and accurate financial data. At Enkel, we provide business owners and not-for-profit organizations with monthly bookkeeping and other accounting services.

Contact us today for more information.

How We Select and Evaluate Our Software Recommendations

We thoroughly research and test the apps we include in our regular workflow for Client bookkeeping services. After deciding on criteria for evaluating the software and then researching the app itself, we tested the app, noting its strengths and weaknesses. We then work with the app for at least a few weeks before deciding whether to recommend it to our readers. We use the software as it was designed for its intended tasks. For a detailed walk-through of how we select and evaluate software, please see the details of our process.

Enkel receives no consideration or compensation from software publishers for featuring their software in our blog articles.

Omar Visram
About Omar Visram
Omar Visram is the Co-founder and CEO of Enkel Backoffice Solutions Inc. Headquartered in Vancouver, Enkel provides bookkeeping, payroll, accounts payable and accounts receivable services to over 300 organizations Canada-wide.