Cashflow and profit forecasts are valuable and essential tools for any business. While preparing these forecasts can be quite daunting, cumbersome, and time-consuming, it provides important insights to your business. It allows you to measure your business growth, future success challenges and provide you with a competitive edge!

Here are 5 important facts about cashflow and profit forecasting.

Fact #1 – Cashflow is one of the most Important Tools for any Business

By preparing a cashflow forecast, you will know how much cash is available to run your business and if or when you can expand it. And if additional financing or investors are required.

The preparation of the forecast may be daunting for some people, so one way to approach it is to split the forecast into different sections. Start with forecasting cash receipts (where your money will come from) and then cash payments (what you will spend money on). Once you have these, put them together for a complete cashflow forecast.

Fact #2 – Cashflow and Profit Forecasts are Different. Why?

New business owners and those who are new to accounting processes often do not understand the difference between a cashflow forecast and a profit forecast. These are two different tools to measure and understand a business’ true performance.

Explained briefly below are the differences:

Cashflow forecasts show a business’ forecasted cash received and cash payments. It is not just limited to income and expenses and factors in movements in business financing and investing activities.

Profit and loss forecasts list the business’ income and expenses that have been incurred or accrued and will include information that a cashflow forecast will not. This includes (but is not limited to) the following:

• Income which has not actually been received from customers (ie. accounts receivable);

• Expenditure which have not actually been paid to suppliers (ie. accounts payable); and

• Non-cash expenditure such as depreciation, amortisation.

On the flip side, a cashflow forecast will also include cash inflows and cash outflows that a profit forecast will not. This includes (but is not limited to) the following:

• Income tax paid or refunded;

• GST paid or refunded;

• Loan repayments; and

• Purchases for capital expenditure (eg. new furniture, property, plant, and equipment).

Fact #3 – Profit and Cashflow Forecasting Allows a Business to Set “Growth Goals”

When a business prepares a profit forecast, it is effectively setting out where it wants to be positioned financially in the future. Preparing a “realistic” profit forecast will allow you to understand the following:

• Level of growth that you may be able to achieve and how long it will take to get there;

• Sales/income targets that you need to achieve the level of growth that you have planned for your business;

• Business expenditure that is needed and whether or not the business can “afford” to undertake the levels of planned expenditure; and

• The levels of profitability that you have set out to achieve and whether or not they are really at achievable.

Fact #4 – Compare and Review Actual Results to the Cashflow and Profit Forecasts

Revisiting your forecasts and comparing your actual figures to your forecasts, will allow you to identify:

• Are your forecasts “realistic” enough.

• Why are the forecasts not being achieved? This may highlight the need to review the business’ policies and procedures and make improvements. It may be staff related or stock management matters that need to be looked at (to name a few).

• What steps need to be done to bring the business back on track or in line with your forecasts.

• If your actual results are better than your forecasts, then well done! You have achieved what you set out to achieve and you are on the road to achieving your growth goals!

Fact #5 – Bad Cashflow is Bad for Your Business

Bad or negative cashflow is not only bad for your business but is also bad for you (and those close to you). The increased pressures of falling short each week and being unable to pay for business expenditure can be stressful and time-consuming.

Monitoring cashflow regularly (as often as weekly), can allow you to put plans into place before it is too late. It will allow you to determine the following to turn around your business:

• Whether or not costs should be cut and in which areas of the business;

• Review stock levels and turnover rates to identify if you are over/under stocked in different items. If the stock has been overproduced, you could contact customers and offer a special sale promotion;

• Review plant and equipment and sell any items that are no longer required;

• A decision to lease items of plant and equipment, rather than buying;

• Have sales dropped? Review sales figure to target these areas and find out why this is happening and how it can be improved; and

• Are your creditor payment terms too short? Review payment terms and contact creditors to see if they are willing to extend their terms.


By engaging a virtual /0n-call CFO, we can help you to prepare your cashflow and profit forecasts and take these pressures away from you so that you can focus on achieving your business’ “growth goals”. If you would like to know more, please contact the team at EMspire Advisory today.

Please note that this information is not specific and is general in nature and cannot be relied on as advice. Please contact us for advice specific to you and your circumstances.