The Crystal Ball or the Cash Flow Forecast? You decide

14 May 2020


The havoc wreaked on businesses of all shapes and sizes by the COVID 19 pandemic, has left all but a few, dangling in limbo. Not knowing where the next job is coming from, or when the next invoice will be paid. Without the Governments intervention, the absence of sales and a regular flow of cash, would by now have resulted in catastrophic levels of business failures.

Fortunately, a succession of loans and grants has provided a lifeline for many businesses, and for the short term at least, disaster has been averted.

But then what? It’s safe to say that uncertainty, will be name of the game for the foreseeable future. Navigating a business safely though this sea of uncertainty, will not be an easy task. But, those that survive, and even prosper, will all have one thing in common. One way or another, they will have kept, what is the very life blood of every business, flowing. They will have managed their cash flow.

Managing Cash Flow:

Assuming you are invoicing promptly, and have a robust system in place for debt collection, the third weapon in your “stay solvent and grow” armoury is the cash flow forecast.

So what will a cash flow forecast do for you?

It will;

  • Give you a plan to work to, a strategy.
  • Encourage you to set targets, which if achieved will keep the business solvent.
  • Enable you to calculate your break even turnover.
  • Show, on a month by month basis, how much cash needs to come into the business in order to cover costs and keep the business solvent
  • Give you early warnings if things are not going to plan, allowing you to re-plan your strategy
  • Give you early warnings if things are going better than planned, allowing you to plan for further growth.
  • Prompt you to monitor expenditure more closely.
  • Help you to re-adjust should the worst happen. For example a customer stops trading and that large cheque you were expecting isn’t coming.

Where to start with a Forecast

There are 2 principals you have to accept before starting your forecast.

  1. Unless you are lucky enough to have access to a fully functioning crystal ball, it will almost certainly not be accurate.
  2. It is not going to be written in stone. It will be a working document, regularly monitored and chopped and changed, as and when circumstances change.

So Firstly;

Start with what you know. Overheads or fixed costs, tend to be just that, fixed. Or at least reasonably consistent. For example;

  • Rent /Business rates
  • Energy
  • Salaries
  • Accountancy/legal


Look at your “Cost of Sales” expenditure. This is not so easy, as by its very nature it fluctuates according to your sales figures. Typical Cost of sales items would be;

  • Fuel
  • Stock
  • Materials
  • Subcontractors

A good starting point when forecasting Cost of Sales, is to look at previous years or months of trading. Invariably if you calculate the Cost of Sales as a percentage of actual Sales, the figure will be fairly consistent over a number of years. Use this percentage when you have forecast Sales

And Finally;

And this is the really tricky bit, especially in the current climate. How do you forecast sales? There are no easy answers to this question. There are no magic formulas.

Every business is different, every sector is different. Look at previous results, look at individual customers, market conditions and anything else that you consider relevant.

Overall be honest with yourself, and put in realistic figures. So if you don’t expect a single penny to go into your bank account next month, put that big fat 0 in your forecast. You can always change it if you’re wrong.

Forecasting is not an exact science, in fact it’s the complete opposite. Initially, don’t get bogged down with too much detail. Get those numbers that you know down on paper. Then, and as realistically as you can, “guesstimate” the others.

Review your figures regularly, compare with your actual performance, and adjust the forecast accordingly. Remember this is a working document, make it part of your regular management reporting.

Your cash flow forecast is possibly the closest thing you will ever have to that fully functioning crystal ball.  It could be the difference between success and failure, in what promises to be some of the most difficult trading conditions any of us have ever had to deal with.

*St Helens Chamber can provide 12 hours of fully funded support for financial projects including forecasting. For more details contact John Woods at 01744 742058, 07769 144274

Or visit our website at

*Funded by St. Helens Council, and available to businesses based in St Helens only.