Start with cash, not accounting profit.
List your expected receipts and payments by week. Separate confirmed dates from assumptions, and include payroll, suppliers, tax payments and debt obligations.
Build a base case and a downside case.
Test delays in customer collections and changes in major payments. Track the lowest cash balance and make assumptions visible to the people reviewing the forecast.
Keep the forecast alive.
Assign an owner, reconcile opening cash and update the model regularly. Use the variances to improve decisions about collections, spending and financing.
Build the first version
- Set a weekly horizon and opening bank balance.
- Schedule receipts using expected collection dates, not invoice dates.
- Separate committed payments from discretionary spending.
- Reconcile each week and compare forecast with actual cash.