Cash Flow Forecast

Cash Flow Forecast with 247

Money and capital are the first and most necessary factor to start a business. For business managers, cash flow management is crucial to the survival of a new business. To effectively manage and develop a business, business owners and managers need to learn and understand cash flow and the factors surrounding it.


Cash flow is the movement of money in and out of money (ie received and spent) of currencies in a business. For example: When your business sells products and receives money, that is cash inflow. On the contrary, when paying for expenses, it is a cash outflow.

The top goal of business is to create a Positive Cash Flow, that is, how to receive more money in than spend money. This sounds easy and simple, but a lot of companies have problems with their cash flow. Understand what is cash flow and prepare a cash flow forecast so you can stay on top of your finances.


Net cash flow or net cash is understood as the amount of money received and used in business activities. Net cash flow will be calculated, divided into 3 groups based on areas: operation activities, financial activities and investment activities.


The first thing a new business owner needs to do is cash flow planning because an accurate cash flow can best warn of problems before they happen. Cash flow planning is very important because you have to see the possibilities in the future and predict the balance of a number of factors such as debts, customer payment history … and be very careful with the assumptions you make.


The next step in accurately predicting cash flow is predicting in detail how much money and when it will be spent. This means that you have to anticipate all the possibilities as you not only know when you spend your money but also know what you spend your money on and when. Cash flow planning is not an easy thing for any business owner, but it is an important step that any business must do, it is equal to the future business plan of the enterprise.

There are a number of measures to help managers effectively manage cash outflows:

  • Take advantage of special debts that should not be paid off early
  • Create a relationship with a partner because your debts can be deferred based on how your relationship with that partner
  • Don’t focus on low prices sometimes we need flexibility in payment terms more than getting low prices

Cash inflow can be obtained from the revenue of the business and managers can fully forecast and improve this cash flow in the following ways:

  • Get rid of obsolete inventory with anything you can get
  • Require the customer to pay at the time the pre-order is made
  • Offer discount policies for customers who pay bills quickly
  • Monitor accounts receivable to identify and prevent late paying customers.

Establishing a cash-on-delivery policy is another way to opt out of paying late customers.

There are basically two main types of cash forecasting methods – direct and indirect.

  • The direct method is used to cash flow forecast short-term cash flows, typically less than 90 days, and forecast cash flows and balances for short-term liquidity management purposes. The direct method lists cash receipts and payments, specific in value to time. Receivables are mainly receivables from recent sales, but also include sales of fixed assets, investments, etc… Expenses include salary payments, payment of payables from recent purchases, dividends and interest…Thus the method is directly based on the available data.
  • The indirect method is for forecasting cash flows in the long term and based on various indirect methods for constructing the cash flow forecast such as using balance sheet and income statement.

Key differences between direct and indirect cash flow forecasting:

  Direct method Indirect method
Period Short-term Long-term
Result Money needed for working capital Money needed for long-term development strategy and big projects
Making Calculation based on receivables and short-term debt payments. Calculations are based on financial statements.

It is necessary to regularly review the difference between cash flow forecast and reality. Other deviations need to be analysed on a daily basis. Large differences need to be analysed to determine the cause, make adjustments for subsequent forecasts to improve forecast quality.

With so much information available, it can be difficult to be aware of all the factors which may affect a company’s cash flow.

It’s essential for any business that is established, expanding or being created, to understand the factors that impact and influence cash flow.

If you’re looking to learn more about money management and business finance in general, our objective is to help you make an educated choice that addresses your specific needs and goals and also provides additional insight into financial matters for general interest.