Making your cash flow forecast is the most important financial and business task you can do in your business.

Running a business is hard. But there’s one thing that will always derail your dreams, scupper your business, and have it collapsing around you - running out of cash.

Above all, whatever the size, shape, or type of your business, you must have a forecast. This week my I Hate Numbers podcast helps you build yours so that you can make sure that never happens again!

I'll show you that by making your cashflow forecast you'll be able to see exactly where your money is coming from and going to at any given time – which means no more surprises when it comes time for payroll or rent! And if something does go wrong? No worries! You've got this now.

Listen now to find out more

Do you want to know how to forecast your cash flow?

Making a cash flow forecast is the process of predicting what will happen with your company’s finances. It involves translating your business story into activity and then turning that activity into a financial plan.

You need a plan so that when challenges come up, you are prepared and ready to face them head on. A good way to start this journey is by making a cash flow forecast today! All you need is your business story and then you can start.

The steps you need to go through to make that forecast a reality - translating that business story, into what that means in terms of activity and getting out your business Lego bricks, to turn that activity into your financials. If you want a visual representation folks, then check out this video on my I Hate Numbers You Tube channel,.

Conclusion

Above all, you need to know that Making your cash flow forecast is the key to your financial liberation, well-being and control.  This week’s podcast tells you this, plus calculations, tips, and advice.

Listen to find out more.

My mission is to inform, inspire and educate you to get closer to your numbers. You can make more profits, save tax and time, improve your wellbeing and your money mindset.

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Links

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One thing guaranteed to derail your dreams, scupper your business, have it collapsing around your ears is running out of cash. Your cash flow forecast is the most important financial and business result you have in your business. Whatever size, type, or complex your business is, you must have a forecast.

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Hi folks. Welcome to another weekly episode on I Hate Numbers. The channel that's here to inform, inspire, and educate you to get closer to your numbers. You can make more profit, save tax and time, improve your well-being and your money mindset. In this podcast, I'm going to talk you through the building blocks, the steps you need to go through to assemble your very own cash flow forecast.

The steps you need to go through to make that forecast a reality are your business story, translating that business story into what that means in terms of activity, and getting out your business Lego bricks to turn that activity into your financials. If you want a visual representation, folks, then check out the show notes for a relevant link to accompany this podcast. In the beginning, as how all good stories start,

you have a story, you have an idea, a vision about your business, where you want to take it, what your goals and aspirations are, and if you don't have goals, if you don't have an idea where you want your business to be in 12-months time, then you don't have a business on your hands. Your story must have an ending,

a destination, must have goals where you want to be. Next thing, you need to align your destination, your goals with the tactics i.e. what is your route map, what is your plan that you're going to be executing to get to that end destination. Think of it like going on holiday, visiting family and friends. You have a destination in mind, but you will have also planned your route as to how to get there. That will lessen the risk of things going wrong.

You arrive at your destination refreshed. You know the pit stops that you're going to make. Everything underpins with a plan. Your tactics is your smart journey plan. If we look at your destination, many other people call it your goals, it must have two features. Firstly, you must be able to measure it, to quantify it, and to recognise it.

If you press fast forward, you went into a time machine, and you looked at where you are in 12 months' time, could you identify it and say, yes, I've achieved that particular goal. If you can't measure, you can't manage it. What is an example of a goal you might be saying? Well, a goal in the financial arena would be achieving a certain level of profitability.

Put it in dollar terms, in pound note terms, whatever currency you are trading in. You may be looking at a financial goal expressed in terms of money in the bank, a level of cash reserves. You may be looking at a financial goal for your business in terms of how much you will reward yourself. Goals go across the arena, not just in the financial sense, but we're going to talk about financial goals.

There are marketing goals, there are HR goals, there are networking goals, there are social enterprise goals. There are many goals that you can translate into your business. Now, forecasting, remember folks, is not just about predicting the future with 100% accuracy. Nobody expects you to have that crystal ball that you can predict the future with certainty.

What we're saying is we're taking a leap. We're looking at our cash flow, which is not a straight jacket, and it's saying, based on my future journey, the activity I will invest, the money I will spend, the circumstances that are relevant for my sector, how do I see that business future translating in monetary terms?

Let's think in terms of activity. Now, in terms of activity, the most important activity to try and determine is how much you will be selling. I would recommend that you begin with what is that figure of what you're going to be selling, and look at that as an aggregate, a total figure. Don't worry about how much you're going to sell when. What is that figure based on the level of capacity you have,

the way your marketplace is changing, what is that forecast looking like in terms of the level of sales? Now, we need to get our business Lego bricks in shape here now, and this is how the business Lego bricks will be working. Now, your most challenging number to identify is figuring out how much money will be coming into your business?

How much are you going to sell? Now, there are three considerations for working out how much money comes into your business. We need to think about how many, we also need to think about how much, and when does that occur. Let's expand on those three elements. How many means how much of that service will you be providing.

So, how many hours of your own time? How many days of your time? If you are a training company, how many courses will you be selling? If your business is retailing, how many of the items are you going to be selling to your customers? A manufacturer will be talking in terms of number of products coming off the production line.

So, what's the quantity? What's the number that is one part of your Lego bricks? Having figured out how much of the item, how many of the items, then we need to figure out what we are going to charge our customers for each hour of our time, for each day of our time, each course we sell, each product, and we need those two numbers together.

How much of the item and how much we charge for each of those items, and remember, those items could be hours of your time, days of your time, number of courses, number of products. It's your choice. Now, the next critical question, as far as the cash flow forecast for your business is concerned, is when does that money actually land in your bank account?

You might sell something in the month of August, but you may not get paid for that until the month of September. So, timing is everything for a cash flow forecast. Let's get some more Lego bricks out of our toy box. Now, what you sell influences how much you are going to spend on costs, how much you will spend on resources. If you are a retailer, how much you sell influences how much you need to buy from your supplier.

If you are a restaurateur, every meal that you sell influences and affects how much food you need to buy in. Now, taking that same approach for translating that into numbers is the quantity of that resource. How much you will pay for each item of that resource and when you pay your supplier needs to be factored into your cash flow forecast.

We need to ultimately figure out when the money leaves our bank account to settle and pay for that resource. In the beginning, just think big-picture stuff. Don't worry about trying to figure it out for each month. Look at the picture over a 12-month period. Now, if you're there scratching your head thinking, how do I know how much I'm going to sell,

in reality, nobody does, but we can use a number of ways to actually get that answer. We can look at the history. How much have we sold historally? Do we have particular customers coming back to repeat buying? Do we have any inquiries or contracts coming through the pipeline? What's our own personal capacity?

How much money are we going to be spending on marketing? What do we anticipate in terms of those new business clients will be based on the traction we get from our website, our social media feed? Somewhere, you need to stick your finger in the air and you need to guesstimate, figure out, work out the numbers of those items that you will sell, how much they're going to be worth to your business.

Ideally, if you can break those sales into categories, into groups, it's even more powerful stuff. Your restaurant business may look at money coming in based on diners sitting in and delivery services. Your marketing business could be looking at monthly retainers and the level of project work you're going to be taking on.

My accounting firm would be looking in terms of the number of clients that we have for tax work, the number of clients that we have for courses, and perhaps, the number of clients that we have for accounts preparation. Whatever your mojo is, whatever your business is, then look at the business in those groups.

Look in terms of customer size, in terms of anything that you can categorise. If you don't have that information to hand, that's something you can look at in further. Now, as we get towards the end of our building blocks here, we need to think about the money that leaves our bank account. When does it leave?

So, we buy goods from a supplier. Does the supplier give us credit? Do they give us time to pay for those goods, or is it cash with order? If so, if we order in July, the money leaves our bank account in July as well. There are another group of costs that we need to factor in, and those costs are there for the cost to support your business,

typically, your marketing costs, your wage bill, the rent, and rates that you have, all those costs are there to support the business, so make sure you don't omit them. Make sure you include them, and again, the same consideration applies. Identify what they are, go back to your story and then translate that into your financial number, and then identify when the money leaves the account.

Now, as the building blocks are put into place, what is the final version of your cash flow look like and what good is it to us? I recommend to all the many thousands of clients I've helped over the years is get the story out of your head, get it onto a format, get it into a spreadsheet, into whatever device you are using, and do not edit the stories you go along.

Do not stop and think, oh, I can't afford to do X. I don't know what's going to happen. Dump it from your head, write your story, translate that story, and convert it, and put it into something. Now, it doesn't matter whether it looks atrocious, we can always edit stories, we can always go back to them. So, in our example, let's imagine we built our cash flow forecast.

We look at it now, we've got it broken down into months of the year, and what we said, looking ahead into the future, we know in the first month of our forecast, no money comes into the business from what we sold. However, we've got costs that will leave the business, money that leaves our bank account, let's say to the tune of 10,000.

So, that means in that first month, there's a deficit of money in zero, money out ten, cash deficit of 10,000. Now, we have a cash reserve to begin with at the beginning of that month of 2, so that means in our first month of the cash flow, we've got an 8,000 deficit. Hold breath, hold nerve. Let's carry on. In the following month, we have

15,000 coming in now by way of sales that we made in the previous month, we’re now being paid for. We've still got a cash commitment of 10, so that gives us a 5,000 surplus in that second month. Happy days. We started the month with 8 as an overdraft. We now end up with 3,000 negative or overdrawn. Let's proceed and we just carry on in that format.

Now, the key thing is in the story, don't hesitate, don't hold back. Translate your ambition, your plan, what you're planning to do, and just get it in there. Do not say, I can't afford to do X. That decision comes later. Now, the power of the story is, once you put all your figures in there, you look at your cash flow, you look at the patent that's occurring each month, and then you are in a great position to make decisions. If the situation presents itself as too bad,

so you've got big cash deficits in the early stages, and you can't sustain them, you can't support them by loans or overdrafts, then you can revisit the cash flow story, and you can revisit your own business story. Can you challenge your costs? Do you need to spend the money when you've anticipated spending it?

Do you actually need to buy that item? Are there ways that you can reduce the cost of buying in? Can you get better deals from suppliers? Are there ways that you can accelerate the cash coming in from customers? Are there products in there that actually perhaps might be losing your money? Can you delay

paying things? Are you overbuying? All those questions can be answered once you've done your first draft of your cash flow story. Folks, I hope you got some value out of this podcast. If you did, then please share it on your socials. Even better, write a review and until next week, have a good week and start writing your own business and cash stories.

We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.