Cashflow Forecasting for start up businesses

What is cashflow forecasting and why is it important for new businesses?

A cashflow forecast is a financial tool that estimates the money expected to flow into and out of a business over a specific period. For start-up businesses, it is essential because it helps predict whether there will be enough cash available to cover day-to-day expenses, pay suppliers, and invest in growth. By identifying potential cash shortages in advance, a cash flow forecast enables business owners to make informed decisions, avoid financial difficulties, and build a more sustainable business.

Key benefits of cashflow forecasting

• Improves financial planning by estimating future cash inflows and outflows.
• Identifies potential cash shortages before they become a problem, allowing time to take corrective action.
• Supports better decision-making on spending, hiring, and business growth.
• Helps manage day-to-day expenses by ensuring there is enough cash to pay wages, suppliers, and bills.
• Provides early warning of financial issues, enabling the business to secure additional funding or reduce costs if needed.

Frequently asked questions

Will I have enough cash to pay suppliers?

A well-structured forecast will help you know whether you’ll have enough cash to pay suppliers by comparing the money you expect to receive from customers with the money you expect to pay out over a specific period. If the forecast shows that supplier payments are due before enough cash is expected to come in, you can identify the shortfall in advance and take action, such as delaying non-essential spending, negotiating longer payment terms with suppliers, or arranging short-term finance.

When are my tax bills due and will I have enough cash?

A well-prepared cash flow forecast incorporates all key tax payment dates, including VAT, PAYE and Corporation Tax. This provides business owners with a clear overview of expected cash outflows and helps identify potential cash flow pinch points before they occur. By highlighting these periods in advance, business owners can take a proactive approach to manage their finances, such as setting aside funds, adjusting expenditure or arranging additional finance if required.

Can I afford to employ someone?

A big question these days is whether business can afford to employ an additional member of staff to strengthen the team. By forecasting future income and expenditure, business owners can assess whether there will be sufficient cash available to cover ongoing employment costs, including salaries, national insurance contributions, pension payments and other associated expenses. This enables them to make informed recruitment decisions and reduces the risk of taking on staffing costs that the business may struggle to sustain.

How to prepare an effective cashflow forecast

Preparing a detailed forecast can  feel overwhelming if you don’t know where to start.  Below I have noted some of the key points to consider when preparing the forecast:

• Sales – forecast the expected sales for the period but make sure you think about how long it will take your customers to pay for the service/goods i.e. when will you receive the cash – remember, invoices raised today doesn’t mean cash will arrive today.
• Expenditure – forecast all the business expenditure realistically which will avoid surprises later down the line, include items such as:
  • Rent and utilities
  • Insurance
  • Marketing
  • Software subscriptions
  • Professional fees
  • Vehicle costs
  • Telephone and internet
  • Equipment purchases
• VAT – One of the biggest cash flow shocks for growing businesses is VAT. If you’re VAT registered, some of the money entering your bank account doesn’t belong to your business – it belongs to HMRC.  Make sure these payments are considered and included within your forecast.
• Payroll costs – remember that payroll involves more than just the wages payment, you will also need to build the below payments into your forecast:
  • Workplace pension contributions
  • PAYE and National Insurance payments to HMRC
  • Holiday pay
• Loan repayments and finance – incorporate repayments of any loans or finance into your monthly outflows such as:
  • Bank loan
  • Vehicle finance
  • Directors loan repayments
  • Asset finance
• Capital expenditure – If you are planning to purchase new equipment such as laptops, machinery, tools, vans etc. make sure you consider how this will be financed and that it’s built in to your forecasts.

How we can help

At Kirk Newsholme, we’ve supported businesses of all sizes to build accurate forecasts. We don’t just crunch the numbers – we work together with our clients to understand your business and help clients understand what the figures mean and how to use them to make stronger decisions.

A recent example of how we helped a newly established Leeds-based business was when their director approached us to prepare financial forecasts to provide a clear visual overview of the company’s expected monthly expenditure and projected financial position over the next 12 months.

To ensure the forecasts were tailored to the business, we held detailed discussions with the director to gain a thorough understanding of the business model, objectives, and key assumptions for the year ahead. Using this information, we prepared a comprehensive set of financial forecasts that accurately reflected the expected performance of the business.

The forecasts identified potential cash flow pinch points and periods of increased financial pressure, enabling the director to plan ahead and take proactive steps to manage these challenges. As a result, the client gained greater confidence in their financial planning and a clear roadmap to support informed business decisions throughout the year.

Written by Oskar Stachura, Business Services Manager, Kirk Newsholme Chartered Accountants

Speak to us

If you’d like to speak to our team at Kirk Newsholme about how forecasting could strengthen your business, please contact Oskar Stachura at oskar.stachura@kirknewsholme.co.uk or DD 0113 2044225 for a free, no-obligation initial meeting.

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