Prepare Cashflow Forecast for SME Business Loan Application

A cash flow forecast is a financial document that outlines the inflows and outflows of cash and cash equivalents within a business over a future period. This helps the lender understand the liquidity of your business and the ability of your company to meet the loan repayments.

Here is a simple guide for preparing a cash flow forecast for SME business loan applications:

 

Step 1: Prepare Your Cash Flow Forecast Template

You can use your own template or download the cash flow statement template to create your current/forecasted cash flow situation.

Step 2: Determine the Reporting Period

Identify the period for which you are preparing the cash flow forecast. Most lenders require at least a 12-month monthly cash inflows and outflows.

 

Step 3: Know Your Cash Flow Opening Balance

Before you begin, you need to know the opening balance (the starting point): This is the amount of cash available in your business bank accounts on the first day of the forecast period.

 

Step 4: List All Your Incomes and Expenses

For each month in your cash flow forecast, list all the cash inflows and outflows. Include one column for each month and one row for each type of income and expense. Typically, income items are listed at the top of the cash flow forecast, followed by expense categories.

You may be able to predict these figures based on previous years’ data if available. However, remember this forecast reflects when cash enters or leaves your bank account. Once all figures are included, a closing balance will be calculated and validated against the opening balance and all cash inflows and outflows. The closing balance for one month becomes the opening balance for the next month.

 

Step 5: Set Your Forecasting Assumptions

Assumptions for a cash flow forecast are the rules, expectations, or hypotheses used to calculate future cash inflows and outflows. These assumptions can be based on past performance, market trends, and industry characteristics. Common examples include revenue growth rate, upcoming contracts, impact of seasonality, and expense estimates.

It is essential to clearly explain your assumptions and the rationale behind them if required by the lender. If your future cash flow forecast significantly deviates from historical figures, lenders are more likely to rely on the relevant supporting information which justifies your assumptions such as signed contracts or purchase orders.

If you have questions about preparing your cash flow forecast, always consult your accountant. 

At Reginsun, we understand the cash flow behaviours of SMEs and can leverage this knowledge to assist with securing the right funding solutions. A well-prepared cash flow forecast is critical in that it can effectively demonstrate your business?s liquidity and financial health to lenders. We can work with you and your accountant to utilize our experience and knowledge, ensuring you secure the appropriate loans to fund your business’s sustainable growth.

The information provided in this article is factual information only and does not constitute financial advice. Users should seek independent professional advice before making any financial decisions.