Cash Flow Modelling


In our video above, Partner Cameron Field talks about Cash Flow Modelling and how it can benefit your business. 

A transcript of the video is below: 

What is cash flow modelling?

Cash Flow Modelling (CFM) is a forecast of the movements in a business’s cash position. It is based on expected revenue and expenses and movements in assets and liabilities for the period.

Businesses commonly forecast revenue and expenses, but CFM also factors in movement in the balance sheet accounts to determine the true movement in cash.

CFM is a great tool for identifying future periods where cash flow may be constrained and can also incorporate variance reporting and dashboard analysis of key business metrics (e.g. staff productivity).

Why should my business use Cash Flow Modelling?

Cash flow forecasting can benefit all businesses, not just large, established companies. It is an essential process to help with the following:

  • Plan for the future/identify resourcing requirements (i.e. if turnover increases by X amount, what level of additional resources is required – staffing, working capital, stock, etc)
  • It can predict potential problems. Cash forecasting can allow you to predict shortages and surpluses in the upcoming months. You can predict short months to an extent, and plan for those months working on strategies to assist with that such as re-forecasting, altering targets or implementing other strategies to help negate the crunch
  • CFM is often required by banks when applying for business finance or as part of the ongoing review process and commonly used as part of the due diligence process when purchasing a new business
  • CFM can also include variance reporting to identify significant variances between actual results and the forecast. Variances could arise due to various business or economic issues, or inaccurate bookkeeping. It can also help identify fraud/misappropriation of funds
  • Decrease reliance on loans and credit card debt. When you have a grasp of your cash flow situation, you can confirm that you’ll have enough money in the bank to meet payroll, pay suppliers, and cover expenses without relying on debt
  • Business leaders can more confidently decide whether to pursue investments such as capital projects or opportunities in new markets using cash generated from operations or tapping into capital markets
  • Businesses can uncover new insights into their financial performance. It can help business leaders identify where they have operational discipline that affects cash and where it may be lacking. Ultimately, it can produce data to depict not only what is happening, but why

How often should cash flow modelling be updated?

For some clients we revisit modelling every month, for others is only once a quarter. It is dependent on the needs of the business.

Cash Flow Modelling is not a process to be carried out once – a cash flow model is a fluid document that must be revisited on a regular basis. In that way you can be certain that it will always reflect your circumstances should anything change. Even minor changes can make a huge difference in the longer term.

Frequently reviewing CFM keeps the business on track even as circumstances change.

How much time does it take, and how much information do I need to prepare?

Cash Flow Forecasts can be as simple or as complicated as your business needs.

Data can be extracted straight from your bookkeeping software so a good starting point is a robust budget and accurate and current bookkeeping.

As accountants, we take the time to work through the onboarding process with clients to streamline the process and help them understand the model.

What are the benefits of engaging an accountant to prepare cash flow forecasts?

When you engage an accountant to set up a cash flow model you know that it is set up correctly, that data is accurate and that it can be built or customised for your specific circumstance.

A lot of apps and software can be inflexible but we have tools that are adaptable and customisable to your business.

Accountants can not only report the figures, but help you interpret them and what they are telling you about your business. We can help to develop solutions to increase cash flow or negate crunches.

Using CFM can also make your business more efficient. By having established cash flow reporting and reviews in place, it can save time when wanting to apply for loans or grants.


If you would like to know more about Cash Flow Modelling and utilising this tool for your business, talk to your Hall Chadwick QLD Advisor. 

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