12-month cashflow forecast: the rows, the columns and a worked example

What a cashflow forecast is, and who asks for one

It answers a simple question. Will the money coming into the business cover everything going out, in every month, with the loan repayments included?

• Microfinance Ireland asks for a cashflow on a month-by-month basis for the next 12 months with every loan application of €5,000 or more. Its smaller loans need a simpler income and expenditure statement.
• The Department of Social Protection asks for a business cashflow in the plan for either enterprise allowance.
• Banks. Credit Review, the State body that reviews bank refusals, says a bank wants a cashflow forecast for at least 12 months ahead, and ideally for the whole term of the loan.
• Local Enterprise Offices go further. Their templates run to two or three years.

The forecast is one part of the written plan that goes with the figures.

The columns and the rows

The columns. One for each of the next 12 months, and a total at the end. Month 1 is the month the loan arrives.

The rows come in three blocks. These are the rows on Microfinance Ireland's own template.

• Money in. Sales paid for at once. Sales made on credit, in the month the customer pays. Grants. Money that you, your family or another lender put in. The loan you are applying for.
• Money out. What the loan will be spent on. Stock and supplies. Wages and payroll taxes. Your own drawings. Rent and rates. Energy bills. Phone and insurance. Transport. Marketing. VAT. Lease and loan repayments you already have. Repayments on the new loan.
• The result. Total in less total out. The opening bank balance. The closing bank balance, which becomes next month's opening balance.

Microfinance Ireland's template also has rows for the Back to Work Enterprise Allowance and for other household income. The Department of Social Protection wants the opposite in the plan it reads: the allowance must be left out of the business cashflow.

A worked example: the first four months

Take a sole trader opening a small dog-grooming salon in a rented unit, not registered for VAT. The owner puts in €2,000 of savings and borrows €6,000 over three years at 6.5%, which is about €184 a month. The figures are made up to show the method.

• Month 1 looks healthy only because the savings and the loan arrive in it. Most of that money goes straight out on equipment and a year's insurance.
• In month 2, €354 more goes out than comes in. The business gets through it because month 1 left €550 in the bank.
• Sales build up. They do not start at full strength.
• The loan repayments start in month 2, the month after the loan is drawn down. The owner's drawings are there every month.

Carry the same rows on to month 12. If the closing bank balance drops below zero in any month, the business runs out of cash that month unless something changes. You can check what your own loan would cost each month before you fill in that row.

How it differs from a profit forecast

A profit forecast shows whether the business makes money over the year. A cashflow forecast shows whether it can pay its bills in each month. The same business can pass one test and fail the other.

Local Enterprise Office templates show the split. Their profit and loss sheet has a line for depreciation. Their cashflow sheet has lines for equipment costs, loan repayments and VAT payments.

The mistakes lenders see

Microfinance Ireland prints a note beside many of the rows on its template, and has a short guide to filling it in. Together they read like a list of the mistakes it sees.

• Sales from day one. "Be realistic as sales may not commence immediately."
• No allowance for the seasons. Sales may be lower in winter and higher in summer, and energy bills are higher in the winter months.
• No stock replacement. It says it is really important to include a figure to replace stock as and when required.
• Nothing for the owner to live on. The template has a row for the owner's minimum drawings, based on reasonable living expenses and personal loan repayments.
• Rates forgotten. It asks who is responsible for paying the rates, and says the lease should spell it out.
• Marketing costs out of line with sales. It says the marketing spend should be relative to the sales you forecast.
• The loan left out. The loan goes in as income in month 1, and the repayments go in as outgoings from the following month.
• The same cost counted twice. Something bought with the loan is listed once, under the use of the loan, and not again in another row.
• No working shown. It asks you to explain, in the business plan, how you calculated your sales, purchases and staff costs.

For the rest of an application, see what else a lender asks for besides the cashflow.

VAT, tax and bills that do not come every month

VAT. If you are registered, Microfinance Ireland says to include the VAT in your sales in the month you receive it, and to show the payment to Revenue in the month you make it. VAT returns are every two months, due by the 19th of the following month, or the 23rd through ROS.

Income tax. A sole trader's income tax, USC and PRSI fall due at the end of October. Put the payment in as its own row. We explain what a sole trader owes Revenue each October.

Yearly bills. Insurance, commercial rates, licences and accountancy fees go in the month you pay them, not spread across the year.

When you are ready, you can fill in the same rows on screen, free.

Common questions

Keep reading

• the rows on Microfinance Ireland's cashflow spreadsheet explained