Whether you’re thinking about hiring, making a major purchase, or you simply want to keep your business healthy, forecasting your cash flow will give you the visibility to make spending decisions with confidence.
A cash flow statement shows how cash moves in and out of your business during a specific period of time, such as a month or a quarter.
The cash flow statement shows cash in-flows from sales, payments received from invoices, sale of assets, investments, and loans. Out-flows are shown broken down into cash spending, bill payments, loan payments, asset purchases, and other spending.
You can use this download as a template to forecast cash flow or to create a historical cash flow statement.
If you want to document historical cash flow, enter in the monthly history of cash received and spent by your business. The template will calculate your net cash flow and cash balance at the start and end of each month.
The cash flow statement can also be used to forecast cash flow. When forecasting cash flow, you’ll get a prediction of how much cash you’ll have at any given point in the future so you can prepare for potential cash flow problems.
Forecasting cash flow is a crucial part of business planning. It provides the insights you need to understand how much cash your business will need in the future and allow you to plan for loans, investments, and any other cash needs.
When forecasting cash flow, it’s critical to understand the difference between ‘cash sales’ and ‘cash from accounts receivable’. These are two rows in the cash flow forecast template that you will need to fill in when you’re creating your own cash flow forecast.
Cash Sales is your forecast of the cash you receive from customers when they pay you at the time of a sale. That is, you don’t send them an invoice – they pay you immediately.
Cash from Accounts Receivable is the money you receive from customers after you have sent out an invoice. Usually, customers pay invoices “net-30” or sometimes a longer time frame. You keep track of the amount of money customers owe you in Accounts Receivable and then record payments on those invoices in your cash flow statement when you actually get paid.
When you’re building a cash flow forecast, you use the Cash from Accounts Receivable row to predict when invoices will get paid.
Similarly, in the Cash Spent section of the forecast, you’ll forecast your bill payments in the Payments of Accounts Payable row. When you get a bill, your business might not pay that bill right away. The Payments of Accounts Payable row predicts when you might actually pay bills.
The download that we provide here is a “direct” cash flow statement. It totals up all of the cash you plan on spending and subtracts that number from the cash you plan on receiving:
Cash Received – Cash Spent = Cash Flow
Based on your starting cash balance (the amount of money you have in the bank at the start of the forecast) the worksheet will forecast your future cash balance.
Another way of creating a cash flow statement is to use the “indirect” method. This method starts with your Net Income, otherwise known as your Profit, and then makes additions and subtractions to that number to calculate cash flow.
You can download a cash flow statement example that uses the indirect method, but we prefer the direct method for forecasting because it’s much easier to use. Rest assured that both methods will arrive at the same result.