Whether you’re applying for a loan, an overdraft, asset finance or investment, you’ll almost always be asked for a cash flow forecast. Lenders aren’t expecting you to predict the future. They want to see that you understand your business, that the money will be used sensibly, and that they’ll be repaid.
What lenders usually look for
- A realistic starting point: your current bank position and recent trading.
- Clear assumptions: what’s driving sales, costs and timing, written down.
- Repayments built in: the new loan repayments and interest shown in the forecast, not left out.
- Headroom: how much cash is left at the lowest point, after repayments.
- A sensible time frame: often 12 months, and sometimes longer for larger borrowing.
Write down your assumptions
The numbers matter, but the assumptions behind them matter just as much. Note things like:
- How sales are expected to grow, and why: new contracts, extra capacity or price rises.
- How quickly customers pay, based on your history.
- When major costs fall, including tax and any seasonal patterns.
- What the borrowing will be spent on, and when.
A lender reading “sales up 40%” with no explanation will discount it. A lender reading “sales up 15% from a confirmed new contract starting in March” will take it seriously.
Show what happens if things go wrong
Include a simple downside scenario. What if sales are 10% lower, or customers pay a few weeks later? If the business can still meet its repayments in that case, it’s a much stronger application. If it can’t, it’s better to know now and adjust the request. My free cash health check lets you try this kind of stress test in a couple of minutes.
Lenders aren’t looking for the most optimistic forecast. They’re looking for the most believable one.
Common mistakes
- Forgetting the loan repayments themselves.
- Leaving out VAT and tax payments. See our guide to planning for tax payments.
- “Hockey-stick” growth with no explanation.
- Forecasting profit instead of cash. They’re different, as this guide explains.
- Figures that don’t tie back to your latest accounts or bank statements.
After the funding arrives
Keep the forecast going. Comparing actual results with the forecast you gave your lender each month keeps you in control, and makes the next conversation with your bank far easier. If you’d like help preparing a forecast for a funding application, get in touch.
An accountant of ten years who has built more cashflow forecasts than hot dinners. I help owner-managed businesses see what’s coming and plan for it. More about me.