This is an example of a cash flow forecast for the next three months:
|Opening bank balance||£2,000||£1,000||£-1,250|
|Total receipts (money in)||£500||£750||£5,000|
|Total spending (money out)||£1,500||£3,000||£2,000|
|Closing bank balance||£1,000||-£1,250||£1,750|
At the beginning of January, the business has £2,000 worth of cash. You can see that the total flow of cash into the business (receipts) for January is expected to be £500, and that the total outflow from the business (expenditure) is £1,500. There is a net outflow of £1,000 which means the projected bank balance at the beginning of February is only £1,000.
In February, there are expected payments of £3,000 and only £750 of expected income. This means that the business is short of £1,250 cash by the end of February and cannot pay its bills. An overdraft is needed to help the business survive until March when £5,000 worth of payments are expected.
A business can improve its cash flow by: