How to Keep a Rolling 120-Day Cash Flow Forecast

Watering small growing plantsIf you want to keep your business as profitable as possible, you need to be able to predict the inflow and outflow of cash. One of the best ways to manage cash flow is with a rolling 120-day cash flow forecast.

What Is a Rolling 120-Day Cash Flow Forecast?

A rolling 120-day cash flow forecast is a cash flow management tool that includes cash flow predictions for the next four months. This forecast is called “rolling” because it always projects four months into the future. Keep in mind that this cash flow forecast will not be the same as your profit and loss prediction.

Creating a 120-Day Cash Flow Forecast

To create a 120-day cash flow forecast, you will need the prior 12 months’ profit and loss data, which is typically stored in your company’s accounting software. You will use this information to predict future cash flow for the next four months.

Initially, you will have a forecast that predicts only cash flow, as opposed to profit. However, you will then make some adjustments to the forecast that will make it more useful.

  1. Using your profit and loss statements, review the forecast and look for recurring cash payments. Make sure that all of the recurring cash payments you have seen in the past are included in the forecast.
  2. Add in any non-recurring cash payments or other income you are expecting during the next 120 days. If you are not sure about the exact amount of these payments, it is okay to estimate.
  3. Look through cash expenditures and make sure all of your usual expenses are included. Add in any expenses that did not appear on your previous profit and loss statements but are expected in the future.
  4. When making estimates of income or expenditures, remember to take seasonality into account.

Updating the Forecast

Once you have made these adjustments, you will have a reasonable estimate of the cash flow you can expect over the next four months. After creating your first rolling 120-day cash flow forecast, you will need to update the forecast on a monthly basis. To update the forecast, begin by reviewing your actual income and expenses for the previous month to evaluate the difference between your predictions and what actually happened. Use these differences to inform the methods you use to make forecast for future months. In time, your forecasts will become more and more accurate.

Creating and maintaining a rolling 120-day cash flow forecast is only one of many ways you can evaluate and manage cash flow. Because cash flow management and other accounting tasks can be complicated, it is often in your best interest to outsource these responsibilities to a third-party provider. 

Do you have the support you need to manage your small business bookkeeping? Contact us to schedule an appointment to speak with a local small business advisor.