CASH FLOW TIPS: Craig Alexander Rattray says it is important to understand the timings of cash flow

There are three key components of a cash forecast:

  1. Cash receipts or inflows – principally receipts from sales to customers.  As a business owner and having reached this section, you already know that you should use historic data to predict future sales and timings in addition to contracts that have been agreed with customers and dates for agreed work or orders.  The key is to use the best information available and to regularly review and update your assumptions and timings.
  2. Cash payments or outflows – principally payments to suppliers and employees.  Having read the section on cash inflows you will remember that cash outflows are mainly under your control, so this is always easier to forecast.  Always remember to include commitments made, but not yet invoiced.
  3. Cash flow timing – we add this as a third key component as it is the one element most often missed.  This is the relationship between your cash receipts and cash payments.  You should add an element of timing to your plan so that you know when to expect cash coming in and when to make outbound payments.

We want to ensure that you have visibility of the cash low points or troughs in plenty of time to do something about them.  That is one of the key benefits of a rolling cash forecast and provides visibility through the 13 weeks (or the period covered by the forecast).

We also want to ensure you are maintaining cash reserves (or a working capital facility) of at least a month or two of costs.

The template workbook referred to in previous chapters provides visibility for a minimum of 13 weeks or three months (it can easily be extended for more weeks – although we suggest it is not shortened below 13 weeks).  Three months is generally enough time to make changes, address shortfalls and ensure adequate facilities/cash are in place to meet the demands of the business.

We also suggest preparing some sensitivity analysis forecasts and “what if” scenarios.  What if that large, expected receipt comes in a week later than forecast?  What if we can move out some supplier payments for an additional week?

The hardest part of ongoing forecasting is to prepare your first model – it can take a bit of time, but please trust us as it is a worthwhile investment of time.

Generally, we start with the cash outflows as we know the timing of these is within our control. Remember, certain payments cannot be delayed without causing significant issues:

  • Employee wages and salaries – in most countries there is a legal obligation to pay these on time and in line with the employee terms of employment.  If you do not pay your staff, they are unlikely to turn up for work.
  • Taxation whether employee taxes, sales taxes, and corporate taxes
  • Regular automated payments from your account.  These are payments which come out on a specific date within the month.  In the UK there are known as standing orders and direct debits or pre-authorised payments in the USA and Canada.

The easiest way to start the forecast is to start with these reasonably fixed-date cash outflows:

  • monthly regular payments
  • weekly wages
  • monthly salaries
  • credit card
  • payroll taxes
  • sales taxes
  • corporate taxes

We can then factor in the receipts from customers either by inserting the total each week or using a separate worksheet that includes many customer receipts.  Whatever works best for you is the recommended approach. We then add the supplier payments on a similar basis as above.

The challenge now is once everything is populated does it show a positive or negative closing balance? If negative, then we must look to accelerate cash inflows (usually customer receipts) or delay cash outflows (usually supplier payments).

What generally happens is that supplier payments become the balancing figure to ensure a positive position throughout, and this often means pushing them back.  If done early enough we can speak to suppliers about delaying payments as discussed earlier.

Other cash inflows and outflows are factored in, too, and this gives us the starting point for your first rolling cash flow model.

Remember, it is never finished as the intention is to continually monitor it and update it with new information.  It is a dynamic model and should become the key report you use in the company to manage cash flow.

Every week we recommend that one week is added at the end and the earliest week is updated for the actual results.  Then a detailed weekly review should be carried out and a variance report prepared showing the actual result against the previous forecast.  Perform a variance analysis on the prior week actual numbers and understand why it was different, and more importantly understand the impact going forward and adjust the forecast accordingly

The rolling nature of the forecast is because we remove one week and add another week. This allows the future weeks to be updated if say receipts slipped a few days into another week or we had to delay supplier payments as a result.

Ask questions and check key assumptions especially large inflows and outflows.  The phrase “trust but verify” is a good way to look at it.

What was different from forecast last week? Did a large customer payment not come in?  Are we confident that it will come in next week?  Have we checked with our customer?

The rolling cash flow model is great to understand and predict the impact of difficult months perhaps due to a seasonal downturn or perhaps the sales tax due quarter.

The key to cash flow forecasting is to be aware of shortfalls early.

Extracted from Mastering Cash Flow For Business Owners by Craig Alexander Rattray and Jeff Borschowa, available on Amazon

This article was first published on Daily Business ( on 29 April 2021.