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A lender will almost always ask for a cash flow forecast.
According to our expert mortgage brokers at Home Loan Experts, this document proves to banks that your business generates enough surplus cash to easily afford the new loan repayments.
Read on to access our free template and a step-by-step creation guide.
What Is A Cash Flow Forecast?
A cash flow forecast is a financial projection that shows the money expected to enter and leave your business, generally over a 12-month period.
Banks use this document to determine if your business generates enough surplus cash to easily cover the new loan repayments alongside normal operating expenses.
This document is incredibly vital for managing your daily working capital. It also helps lenders understand your cash position and ensures you maintain adequate equity throughout the year.
Why Do Banks Require A Cash Flow Forecast?
Lenders require a cash flow forecast to confirm your business has the serviceability to manage new debt. They use this data to calculate your Debt Service Coverage Ratio (DSCR). This metric proves you can afford the proposed loan repayments without causing financial stress.
Lenders inherently want to mitigate risk. For example, if you are applying for major credit facilities or commercial loans, banks want hard evidence that your business operations will continue smoothly even after taking on the new debt.
What To Include In Your Bank Cash Flow Forecast?
Knowing what to include in your bank cash flow forecast ensures your application is approved faster. You must provide an itemized list of all expected cash inflows and outflows over the designated period.
Cash Inflows (Receipts)
Cash inflows represent all the money physically entering your business bank accounts. You should base these projections on realistic market research and your historical financial data.
Common cash inflows include:
- Sales revenue and daily takings
- Accounts receivable collections
- Tax refunds
- Government grants
- Owner investments and injected capital
Cash Outflows (Payments)
Cash outflows are all the expenses your business must pay to operate day-to-day. This is the number one thing underwriters look for.
Common cash outflows include:
- Cost of Goods Sold (COGS)
- Payroll, wages, and superannuation
- Rent, lease payments, and utilities
- Tax payments (BAS, GST, PAYG)
- The new proposed bank loan repayments
How To Create A Cash Flow Forecast In 5 Steps?
To build a cash flow forecast, set your opening balance, estimate monthly cash inflows, calculate outgoing expenses (including the new loan), and determine your closing balance. Repeat this process for each month to build a full 12-month projection.
Step 1 – Set Your Starting Bank Balance (Opening Balance)
First, check your business bank account. Your Opening Balance is the exact amount of cash you have available on the first day of the forecast period. Establishing a highly accurate starting point is essential for the rest of your forecasting math.
Step 2 – Estimate Your Monthly Incoming Cash
Next, calculate your expected cash inflows. Be realistic and conservative. For example, use past sales data and industry benchmarks to confidently predict future revenue. Always consider the timing of when clients actually pay their invoices, not just when the invoice is sent out.
Step 3 – Calculate Your Monthly Outgoing Expenses
Add up all your monthly outgoing costs, such as rent, payroll, and supplies. However, you must explicitly factor in the new bank loan repayment. Demonstrating exactly how the new debt fits into your current budget is the most critical step for gaining approval.
Step 4 – Calculate Your Closing Balance
To find your closing balance, take your Opening Balance, add your Cash Inflows, and subtract your Cash Outflows. This resulting Closing Balance then automatically becomes the Opening Balance for the following month.
Step 5 – Review And Refine Your Forecast
Finally, review the numbers to ensure they reflect actual cash movements. In contrast to standard accounting, cash flow forecasting only tracks money when it physically changes hands. If your forecast shows negative months, proactively explain these seasonal dips to your lender.
Download Our Free Cash Flow Forecast Template
You can use our free, lender-approved cash flow forecast structure directly below.
Unlike generic accounting tools, our template highlights the specific debt serviceability metrics that Australian banks demand.
| Month | Opening Balance | Total Cash Inflows | Total Operating Outflows | New Loan Repayment | Closing Balance |
|---|---|---|---|---|---|
| Month 1 | $20,000 | $15,000 | $8,000 | $1,200 | $25,800 |
| Month 2 | $25,800 | $18,000 | $8,500 | $1,200 | $34,100 |
| Month 3 | $34,100 | $14,000 | $8,000 | $1,200 | $38,900 |
| Month 4 | $38,900 | $16,500 | $9,000 | $1,200 | $45,200 |
Note: For a successful business loan application, we highly recommend mapping this out for a full 12 to 36 months.
Apply For A Business Loan
We can help get you prepared for your business loan application and choose the right lender for your business needs.
We have more than 50 lenders to choose from and we have strong negotiation power with all of them. We can also help you to qualify for a competitive interest rate and favourable loan terms.
Call us on 1300 889 743 or complete our free assessment form to discover if you qualify for a business loan.