Often businesses can experience large fluctuations in their sales, profits and cash flow. A cash flow forecast indicates the likely future movement of cash in and out of the business. A forecast generally covers the next 12 months; however it can cover more short-term periods, depending on the business’s needs.
Cash inflows are any receipts of cash to a business and can include:
- Payment for goods or services from customers
- Funds received from a bank loan
- Interest on savings and investments
- Refunds from tax returns
- Money contributed from personal funds
Cash outflows are any cash outgoings and can include:
- Purchase of stock, materials or equipment
- Wages, rent, electricity and daily operating expenses
- Loan repayments
- Income tax, tax on employee wages and other taxes
- Asset purchases
Cash flow forecasts help to assist in tax preparation, planning new equipment purchases, keeping on top of ATO obligations (i.e. GST, PAYG withholding, PAYG Instalments, super guarantee etc), and identifying if you need to secure a small business loan. It is vital for all business owners to effectively manage their cash flow to run their business successfully.