3 Key Factors To Consider When Building Out A Cash Flow Forecast 

This guest blog post was written by Bean Ninjas, who specialize in online bookkeeping solutions for digital and e-commerce entrepreneurs

If you went into your financials right now, do you know with precision how much money you’re bringing in and spending month to month? Would you know how much cash-on-hand you have at the start of each month?

You can’t predict the future of your eCommerce business, but you can protect your future self with a cash flow forecast developed using three critical factors.

These factors are:

  1. Beginning cash balance: The total cash on hand you expect to have at the beginning of the month.
  2. Cash inflows: The money coming into your business from operations, investments, or financing (through debt or equity).
  3. Cash outflows: All of the money being spent through the business, including utilities, loan payments, rent, payroll, taxes, and all operating expenses.

The best cash flow forecasts include up-to-date information, a variety of possible scenarios and expert analysis when the data gets too complex. Getting clear on cash flow empowers business owners to plan for the future, anticipate potential issues and avoid reliance on loans and credit card debt.

In this article, we will discuss exactly what cash flow forecasting is as well as why eCommerce business owners need this information. Additionally, we will discuss three critical components of a good cash flow forecast: the numbers needed, how to model these numbers properly and when to ask for expert help.


What Is Cash Flow Forecasting?

A cash flow forecast is an estimate of your businesses’ financial picture in the future.

Unlike an income statement (aka profit and loss statement) which looks at only sales and expense activity and your balance sheet that reports on assets, liabilities or contributions of equity, your cash flow forecast should include all movements of money in and out of your business within the given period, regardless of where they find themselves reported in your key financial reports.This helps ensure there is enough cash flow to operate the business, and that the working capital is managed as effectively as possible.

Cash flow is a fluid metric, one that must be monitored frequently, especially during economic recessions, like the one we’re in now.

With the help of cash flow forecasting, you can anticipate surpluses and shortages in the future and plan accordingly, whether it’s to ramp up collections or seek out a line of credit. Additionally, when you get a clear picture of your cash flow, you’ll have less stress around making payroll and paying vendors – you’ll know the money is really there and future expenses have been considered as much as reasonably possible.

Do you have a specific plan if your business revenue were to suddenly shrink by 50%?

Cash flow forecasting models will help you account for not just the worst-case scenario, but a variety of scenarios. If you’re just getting started with cash flow forecasting, we recommend starting with three: a best-case scenario, a worst-case scenario and something in the middle.

Here’s an example of how using these three models can help you: Say you create a forecasting model that shows some concerning numbers for the moderate- and worst-case scenarios. You decide the place you need to cut costs is employee wages, but by how much?

Because you have detailed projections for multiple models, you can decide with more precision. You could decide to reduce an employee’s hours rather than lay off the employee because your modeling has illustrated that your business can weather the impact.

Just as you want to update your actuals on a weekly basis during a recession, you’ll also want to review those forecasting models frequently as well.

Now that we know what cash flow forecasting is and why it’s critical for eCommerce businesses, here are a few critical factors to consider when building it out.

Factors to Consider for Cash Flow Forecasting

Beginning Cash Balance

A beginning cash balance is a monthly account of the total amount of cash you expect to have on-hand. While we typically recommend updating this information at least monthly, during times of recession we recommend doing it weekly. Especially now, variables can shift quickly, and the quicker you can spot dropping revenue or rising expenses the better.
A beginning cash balance empowers you to purchase inventory with confidence. While inventory creates cash flow, purchasing inventory contributes to your cash outflow. A cash flow forecast can help you with the timing of your inventory purchasing as well as how much inventory to purchase.

When you know your beginning cash balance, you can void cash flow surprises in the next quarter. Cash flow forecasting also can help business owners prevent poor financial decisions. For example, if you are having record sales in the present, but haven’t accounted for future inventory expenses, you could seriously jeopardize your business if you relocated to a space with significantly higher rent.

Another reason to keep track of your cash on-hand frequently is so that you can stay current on vendor invoices. For example, when you receive a product shipment will you have the cash-on-hand to pay for it? Oversights like this can mean big trouble in future months or weeks. A cash flow forecast requires you to factor in the future payments that you owe to inventory providers.

Questions to ask:

  • Do you know how much money you started out with this month?
  • When was the last time you updated your books?

Cash Inflows

Cash inflows document the cash that’s coming to your business. This may include accounts receivables, sales revenue and cash sales. One of the most critical benefits is forecasting customer demand (i.e. sales).

Factors to consider when forecasting customer demand include things like seasonality, historical trends and the predicted results of marketing campaigns.

A cash flow forecast can help you better gauge how much inventory to order (and at what intervals) as well as resourcing and staffing models.

Questions to ask:

  • Have you taken a look at future projections of your businesses’ financial future, factoring in a variety of possible scenarios?
  • What does a best-case, worst-case and a middle-case scenario look like for your business?

Check out our top 9 tips to improve your cash flow forecasting.

Cash Outflows

Cash outflows document the money leaving your business, such as inventory costs, the electric bill, that loan payment, and paying your employees and contractors. One of the most important reasons to track your cash flows is to keep your labor costs appropriate.

A current account of your cash outflows can help you avoid having a warehouse with more staff than shipments due to poor planning. It could save you painful cut-backs in the future. For example, a cash flow forecast can help you see much earlier when your financial big picture is taking a downward turn, preventing you from hiring more help that you may not be able to support in the future.

Additionally, keeping your cash outflow records current will ensure you can finance inventory if needed. For a large purchase order or an inventory shipment, you may find yourself in need of financing. Having your financial information at-the-ready in a cash flow forecast will speed up the approval process and increase your chance of loan approval.

Another benefit of tracking cash outflows is being able to consider storage costs with accuracy. In addition to the inventory itself, where and how you are storing it matters as well. This is especially true if your product requires climate-controlled storage or other special considerations.

Questions to ask:

  • How confident are you that every dollar going in and out is being captured in your books?
  • Are you avoiding taking a deeper look at your cash outflow because you are overwhelmed?

Now that we know the basic ingredients of a cash flow forecast, it’s time to take all of that information and turn it into action.

When To Bring In The Experts

Once you have a financial forecast for the best, worst and middle-of-the-road scenarios, you may find yourself at a crossroads. You may decide you need to find a way to increase cash flow. Should you be charging your customers more? Or, upon getting clear on your cash outflows, you may decide you need to reduce costs. Your cash flow forecast impacts everything from the owner’s pay level to the marketing budget.

If just the mention of what could emerge in your forecast causes discomfort, you aren’t alone. Analysis paralysis is a real thing for business owners, and it can be dangerous. For example, if you are overwhelmed by your financials displayed across three different scenarios, you may (even unintentionally) put off reviewing this information. You could miss something critical, and this could have a massive impact on your business.


Does your cash flow analysis contain more information than you can process on your own? If you’re overwhelmed by cash flow forecasting, we instead recommend bringing in an advisor or bookkeeper, like Bean Ninjas, who understand the nuances of your eCommerce business. Not only can they help you create a cash flow forecast, but they can help with interpreting the data and determining the next steps.

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While you may think you’re doing a good job tracking your finances, if you aren’t doing cash flow forecasting in accordance with best practices, there is still work that needs to be done. A solid cash flow forecast can give you some much-needed grounding when it feels like there are so many uncontrollable external factors.

And since there always will be a level of uncertainty, you will be able to continue this practice throughout the lifespan of your business whether it’s during good times or challenging ones.