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Cashflow forecasting is your crystal ball

Cash is the scarce resource that restricts the development of any business. Having a picture of future cashflow is key for small business owners. It helps understand scenarios like how fast you can go, how much you need to sell, and when you might be able to hire your next employee. Understanding historical trends helps you forecast cashflow. Once you have a forecast you can plan for what the future brings. Not only that, the business decisions you make will be better.

This sort of project is ideal to work on with your accountant. In fact many Xero Partners are doing just that with their clients. Here’s how:

Start with the Cash Summary Report in Xero. This explains the historical trends of cashflow and it’s in a Profit & Loss format.

To build a cashflow forecast, pump the Cash Summary Report out to Excel and use the historical data to map the likely results forward. All Xero Reports are exported with the formulas in the background which makes it easy to take the base numbers and project them forward. Considering the Accounts Receivable and Payable amounts will provide a fairly good idea of what the next few months might look like.

Regular monthly fixed costs like rent and telephone should be relatively easy to project. Working through the revenue model of the business will help determine the likely invoicing and timing for collection. Variable costs can generally be mapped as a percentage of sales. If labour is a big part of the business it might be worth constructing a specific model for wages and salary – these may be fixed or variable. Finally don’t forget the non-operating items such as tax payments and asset purchases.

Once the models have been built they can be updated on a monthly basis with the actual results from the Cash Summary Report in Xero. Take some time to consider why the actual results were different from the forecast. The more often the model is updated, the more the forecast will help with the projections in the future.

Creating a cashflow forecast is one of the ways we’re seeing accountants build a higher value relationship with their client. Often it’s the starting point for other services and it gives both parties an idea of how fast the business can run.

Download a cashflow forecast example.

Whether you’re a small business owner or an accountant we’d love to hear how this has worked for you on the Xero Community. You can also share your experiences about how business and owners and accountants are working together.


Read more about Accountants



New Zealand Bank
27 March 2012 #

Nice explained, I came up to this blog by google as “Cashflow forecasting” query
And i think i was lucky i found ur blog…..there is uniqueness to read in it.
Cashflow models really helps in doing a great organised business

27 March 2012 #

On this point, any chance of getting the long-promised improvements to the Xero budget function? It’s so bad as to be unusable at the moment.

Hamish Edwards
28 March 2012 #

@Chris, we agree it needs work and would love to have made more progress, but, as happens in this game other features have taken priority. We are releasing the ability to import/export budgets in the next release – and (still) have putting tracking against budgets on our list. Thanks for your patience.

Heather Smith
9 April 2012 #

cash flow forecasting & budgeting have always struggled to get a featured place in accounting software…even that other software I wont mention…had limited capacity…I guess the good thing about XERO is the API functionality and you are actively introducing new features…both avenues for a solution

Peter Venero
6 August 2012 #

Please just give us integrated cashflow forecasts. Can’t you just buy and marry it with Xero? Love Xero!!

18 September 2012 #

Hey i found this app that you can actually use with Xero but i havent been able to use it properly so i dont know if it is what you are looking for. @peter venero

Colin Hewitt
2 November 2012 #

Hi Peter – we’re looking for beta testers for our cashflow forecasting for Xero right now… Its called Float and its coming soon!

Dimitris Demetriou
4 January 2013 #

@colin float looks slick, any idea of a release date?

23 July 2013 #

Having cash flow forecasting built into Xero would be awesome.

23 July 2013 #

Built in cashflow forecasting would save us soooo much time. Probably the most important process in our business and too clunky and error prone in our spreadsheets. Please hire another 500 developers or buy another startup. Please hire those developers outside NZ though so there are some left for us. Thanks.

5 August 2013 #

OMG I can’t believe that in this day and age we are back to spreadsheets!!! Xero get your act together and get cashflow forecasts – a company director (for or non-profit) needs these quickly at hand in order to make informed decisions to reduce the risk of insolvency!! I’ll keep using quickbooks until you do! At least is has intelligent reporting.

Richard Metcalfe
12 November 2013 #

Had nightmare day trying to cash flow from Xero, nearly look at other packages, but have so many integrations into it can’t bear to switch today…thanks for note on Float, going to give them a shot on the free trial they do.

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