How To Create A Cash Flow Forecast For Your Project

In day to day life we all have to carefully monitor our incomes and expenditure and negotiate the challenging balance between the two. If we do not have a reliable flow of cash to cover our outgoings then we can get embroiled in a cycle of borrowing and debt which can lead all too rapidly to financial disaster.

The same is true in business. It may be the company's or client's budget that is being shaped and manipulated rather than your personal finances but the principle is exactly the same. If there is not the cash flow there to cover the costs of operational actions the project at hand is inevitably doomed to failure.

This is why it is so important to successfully manage cash flow and budgeting within a specific business project or in the corporate world as a whole. Cash flow forecasts are an essential part of this financial management as they can be analysed to provide effective solutions to any difficulties that arise within the business task. With a carefully considered cash flow forecast to back up your decision making process you will be able to adapt to changes as they occur and ensure that your business plan remains on course.

A cash flow forecast is best created on a spreadsheet such as those in Microsoft Excel. Column headings should reflect cash movement for the specified period of the forecast which are normally broken down into monthly periods.

The rows of the spreadsheet need to reflect three things: the various sources of income for the project, the project's outgoings and the totals, ie. the difference between the two when the outgoings are subtracted from the incomes.

In both the income and outgoings rows it is essential to break down each factor individually. For example, it is no use just labelling one row 'incomes;' there need to be a number of separate rows dealing with sales, investment etc. Similarly for outgoings every little expense incurred needs to be individually recorded no matter how trivial it may appear as only then will the true amounts be accurately measured.

Now comes the tricky part; estimating the values to be entered. If the business or project is already established then the projections should be based on incomes and outgoings of previous years/periods. If the venture is new then factors like market research and trial marketing can be useful indicators for projected periods.

A spreadsheet like those in Microsoft Excel will then calculate the value of the cells and provide you with an accurate representation of your profit or loss for each month as well as a running total for the whole period.

A cash flow forecast is one of the more straightforward methods of predicting the bottom line of a given project. There are more complex methods such as cost/benefit analysis which analyses whether any changes made within a project are financially viable and worthy of the effort required to implement them. But a simple cash flow forecast is the best way to start financial accounting for many people as it puts into focus concerns that can all too easily slip under the radar in the midst of creative inspiration.