How to make a simple cash flow forecast

A cash flow forecast is a table with the coming weeks as columns and, as rows, the money that will come in and the money that will go out. At the bottom of each column you work out the balance you will close that week with. It lets you see the week you would run out of money before it arrives, so you can act in time. For a small food business, six weeks is enough, updated once a week in about 15 minutes.

If you are not yet sure why cash and profit follow different paths, start with the guide to cash flow for small food businesses.

Before you start: three things you need

1. The real business balance. A figure you can see in the bank or count in the cash box. If business and household money share one account, that figure does not exist; first separate business and personal money.
2. Your fixed bills and their dates. Kitchen rent, utilities, insurance, market stall fees, any loan repayments.
3. A list of who owes you and when they pay. Cafés, shops, corporate clients, delivery apps.

Step 1: set up the table

Columns: week 1 to week 6. Rows, in this order:

• Opening balance
• Money in, one row per type (cash and card sales, credit customers, deposits)
• Money out, one row per type (ingredients, packaging, fixed bills, fuel, your draw)
• Net for the week (money in minus money out)
• Closing balance (opening balance plus net)

One week's closing balance is the next week's opening balance.

Step 2: money in, on the date you collect

Put each payment in the week the money reaches your account, not the week you make the sale. Cash and instant transfers land the same day. Card payments land when your provider pays out. A delivery to a café on 14-day terms lands two weeks later. Delivery apps pay when they pay out, with their commission already deducted.

For sales you do not have yet, use what you sold in similar weeks and stay a little below it. If you sell more in December, do not use December to forecast March.

Step 3: money out, all of it

This is where things get forgotten. Go through:

• Ingredients and packaging for what you plan to make each week.
• Fixed bills in the week they are due.
• Fuel, parking, any delivery you pay for.
• Your draw. Leave it out and the forecast lies to you.
• Large purchases you already know are coming.

Step 4: your red line

Choose a minimum balance you do not want to go below. A practical rule is what you spend in your heaviest week. When a week closes below it, that is the week you need to fix.

Worked example: a corporate hot sauce order

You make hot sauce. A company orders 150 gift bottles at $14 each: $2,100. They pay a 50% deposit on confirmation ($1,050) and the balance two weeks after delivery, which happens at the end of week 3. So the balance lands in week 5.

What you know:

• Opening balance: $600. Red line: $400.
• Normal sales: $1,200 a week, but $850 in weeks 2 and 3 because the order takes your time.
• Normal ingredients and packaging: $480 a week, $340 in weeks 2 and 3.
• For the order: bottles, labels and gift boxes $390 (150 × $2.60) in week 1; chillies, vinegar and spices $360 (150 × $2.40) in week 2; a helper $330 in week 3.
• Kitchen rent and utilities: $550 in weeks 1 and 5. Fuel: $70 a week. Your draw: $400 a week.

Check week 1: $2,250 comes in and $1,890 goes out (480 + 390 + 550 + 70 + 400). Net $360; $600 + $360 = $960.

What the table tells you

First: week 3 crosses the red line. It closes at $350, below your $400. Fix: draw $300 instead of $400 that week and take the missing $100 in week 5, when the balance of the order arrives. Week 3 then closes at $450, week 4 at $700, and week 5 is back at $1,350.

Second: do not spend the deposit. In week 1 you have $960, and a second-hand commercial blender for $800 is tempting you. Buy it that week and you close at $160; week 2 ends at −$160. Buy it in week 5, with the adjustment above, and you close at $550, then $800 in week 6, always above the red line.

Third: the order is worth taking. It leaves $2,100 − $390 − $360 − $330 = $1,020, before your own time. The order was never the problem; the order of the dates was. How much money you need tied up to ride out that gap is what working capital measures.

Keeping it alive

• Same day, every week. Monday morning before the wholesaler run, for example.
• Replace forecast with reality. Delete the week that has passed and use the real bank balance as the new opening balance.
• Compare. If you collected less than forecast, find out why: a customer who paid late, a slow market. Adjust the weeks ahead.
• Add a week at the end. That way you always look six weeks ahead.

Common mistakes

• Putting sales on the sale date. A delivery on credit is not money until it is paid.
• Forgetting your draw. The forecast looks perfect and then there is nothing for rent at home.
• Forecasting only the month. A positive month can hide a week in the red.
• Never looking at it again. A forecast that is not updated is useless within two weeks.

Do it with the calculator

Your biggest outgoing line is ingredients and packaging. Put the recipe into the food cost calculator to get the cost per bottle or per unit; multiply it by what you plan to make each week and you have that row of the forecast.