How to plan your cashflow

March 5, 2024
Andrew Knowles

Your business will fail if you don’t plan your cashflow. That may sound dramatic, but it’s true. It’s also true that every business owner does some cashflow planning, even if it’s just juggling numbers in your head and doing some quick sums when cash is tight.

Your business might be profitable on paper, but that doesn’t guarantee there will always be money in the bank to cover next month’s payroll, or the next VAT bill. It’s at these critical moments, when you need to pay out to keep trading, that your cashflow planning is put to the test.

Don’t be the business that’s left high and dry because the cash ran out. Get a grip on your cashflow planning, and put a process in place that will see you through the difficult times.

Create a cashflow forecast

Be prepared to invest time in putting your cashflow forecast together. If it’s not done well, it’s not worth doing at all.

It’s best to do this on a spreadsheet. You don’t need a clever cashflow planning tool - Google Sheets or Excel will do just fine.

We’re going to talk through setting up a monthly cashflow forecast, but a weekly forecast works in exactly the same way. What’s best for you will depend on your typical pattern of receipts and payments. Weekly is more accurate, but takes more time to set up and manage. Whatever approach you take, plan for a few months ahead at the very least.

As part of setting up, record how much cash you have available right now - what’s in the bank. That’s your opening balance.

Estimate your incoming cashflow

Most incoming cash will be from sales. Some of this you can predict from existing contracts, but you also need to estimate sales that will happen in the months ahead.

If estimating future sales seems difficult, base your numbers on past performance. Estimating is an informed guess at what will happen in the future. Make some assumptions about those future sales, and consider when you might be able to invoice for them.

You’ll need to make allowances for the delay between making a sale and receiving the payment. This depends on whether you sell B2B or B2C, on the credit terms you usually agree with your customers, and the typical time it takes for customers to actually pay up. 

Add in any other sources of incoming cash and you now have a picture of the money that you expect to come into your business over the coming months.

It’s useful to perform a sense check, comparing your estimate with actual performance over the last few months. This check could reveal discrepancies, such as a cash source you’ve overlooked.

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Estimate your outgoing cashflow

In the same way that you recorded incoming cash, now look at the money which is going out from your business. This will be for a wide range of reasons including:

  • Payroll
  • Purchase of materials and services
  • Payment for incidentals and expenses
  • Tax payments

It’s very easy to overlook some payments, particularly if they are extremely irregular or only go out once a year. As with sales income, it’s wise to compare your estimates of outgoing payments with what actually happened in preceding months.

Calculate your ongoing cashflow

Here’s how you can put all those numbers - opening cash, incoming cash and outgoing cash, into a simple cashflow forecast spreadsheet.

Input your current cash balance. Below it, input the total of the cash you expect to receive in the next month. Remember, this isn’t the amount you expect to invoice, but the actual cash you anticipate being paid in that month.

You can now calculate the total of your current cash and your anticipated receipts.

Below this, input the total cash you expect to pay out the month. Deduct this figure from the total cash and you’ve got your expected cash balance at the end of the month. 

This closing figure becomes the opening figure for the next month. You’ve now got a basic cashflow forecast. This should help you to predict where you might have cash shortfalls in the months ahead.

How we can help with your cashflow

We work with many UK businesses that want to minimise the disruption that comes as a result of cashflow problems. Our finance specialists help firms avoid shortfalls in working capital by sourcing alternative methods of funding, such as invoice or asset finance.

If your business could benefit from having access to additional funding, either for growth or to cover short-term issues, get in touch with us today.

Jamie Davies
Managing Director

As a founder of multiple businesses, Jamie believes that mindset, discipline and ambition are key drivers for success, both for his businesses and for his clients. 

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