In larger companies, the management of a cash forecasting process is controlled by the head office treasury or finance team. The work to be done in terms of assembling a forecast position generally involves sourcing data from both systems and people. The easiest way to prepare a cash flow forecast is to break the task into several steps. Then bring all the information together at the end.
Typically, cash flow projection can be broken down into 5 simple steps as follows:

Prepare A Sales Forecast

For existing businesses, look at last year’s sales figures and make adjustments based on past trends, such as increasing or decreasing, or flatlining sales growth.
For new business, when you prepare your cash flow forecasts, start by estimating all the cash outflows. This gives a rough idea of the amount of cash that needs to come in to cover the cash going out, and therefore what sales you’ll need to make

Estimating Cash Inflows

Sources of cash inflows vary from business to business such as:

• GST rebates and tax refunds
• owners invest more money (add extra equity) in the business
• government or other grants
• loans are paid back to you or you sell an asset
• other sources such as royalties, franchise fees, or license fees.

Gather Details and Prepare Cash Flow Forecast

The period to be covered in the forecast is decided early on. Since cash flows are all about timing and the flow of cash, businesses would need to have an opening bank balance (i.e. actual cash on hand), add in all the cash inflows and deduct the cash outflows for each period, usually by month. The number at the end of each month is referred to as the closing cash balance and this number becomes the opening cash balance for the next month.

Review: Estimated Vs Actual Cash Flow

This is the most important step of all. Once cash flow forecast is done, revisit and compare the estimated and the actual cash flows for the period. This helps to highlight any differences between estimated and actual cash flow, and further helps to understand why your cash flow didn’t meet your expectations.