Cashflow and profit forecasts are valuable and essential tools for all businesses. The preparation can be quite challenging and time-consuming, but 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.

If you have experienced a downturn during the COVID19 pandemic, forecasting will allow you to quantify all the fixed costs that you need to find financing for or it may need to be provided to your bank to negotiate payment relief.

Here are 5 important facts about cash flow and profit forecasts.


1. Cashflow Forecast is one of the Most Important Tools for Any Business

A cash flow forecast provides valuable insights into your business. It tells you how much cash is available to run your business, if or when you can expand it. And if additional financing or investors are required.

To simplify the preparation process, one way to approach it is to split the forecast into different sections:

• Start with forecasting cash receipts (ie. where your money will come from).

• Then forecast cash payments (ie. what you will spend money on).

• Once you have these, put them together for a complete cash flow forecast.

2. What is the Difference Between Cashflow and Profit Forecasts? 

This is a commonly asked question. A cash flow forecast and a profit forecast are two different tools to measure a business’ true performance and plan for the future.

Here are some of the key differences:

Profit forecasts list the business’ income and expenses that have been incurred/accrued and will include information that a cash flow forecast will not.

This includes (but is not limited to):

• Income that 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 and amortisation.

On the flip side, cash flow forecasts show a business’ anticipated cash receipts and cash payments. It is not just limited to income and expenses on the profit forecast.

A cash flow forecast factors in movements in business financing and investing activities. This includes (but is not limited to):

• GST and Income tax paid or refunded;

• Loan repayments;

• New borrowings; and

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

3. Profit and Cashflow Forecasts Allows a Business to Set “Growth Goals”

When a  business prepares a profit or cash flow forecast, it is effectively setting out what it wants to accomplish and where it wants to be positioned financially in the future.

Preparing a “realistic” forecast will allow you to understand:

• The level of growth that you want to achieve and how long it will take to get there;

• Sales targets to achieve the desired level of growth;

• Expenditure that is needed and whether or not the business can “afford” to pay for this; and

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

4. Compare Actual Results to the Forecasts

By revisiting your forecasts and comparing your actual results to the forecasts, will allow you to identify:

• Are your forecasts “realistic” enough.

• Why are the forecasts not being achieved? You may need to review your policies and procedures and make improvements.

• 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 are on track to achieving to growth goals!

5. Bad Cashflow is Bad for Your Business

Bad or negative cash flow is not only bad for your business, but it 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 expenses on time is stressful and time-consuming.

Monitoring cash flow regularly (as often as weekly), can allow you to put plans into place before it is too late.

Actions that you could implement to improve your cashflow may include:

• Review costs and identify any cost savings;

• 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 offer a special sale;

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

• Lease plant and equipment, rather than buying;

• Improve sales performance;

• Chase up debtors; and

• Request better payment terms from your creditors.


By engaging a virtual on-call CFO, we can help you to prepare your cash flow and profit forecasts so 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.