The Five Components of a Cash Flow Forecast For Digital Creative Agencies

Not sure where you stand or where your agency is heading? A cash flow forecast can provide you with clarity.

Before diving into the details of what to include in your cash flow forecast, it’s important to understand a cash flow forecast is not a nice-to-have. It’s a critical tool every agency should have in its arsenal.

A cash flow forecast is a projection of money coming into and leaving your agency's bank account.

It shows you how you’re making payroll for the next 3 months and answers whether you'll need to draw down on external funding. It helps you make important business decisions, like whether you should delay investing in that new team member this month.

To have a reliable cash flow forecast it needs to have the following components.

Projected Sales

A good way to develop projected sales figures is to look at historical sales data and then apply some assumptions on top. Factor in your future marketing efforts, industry trends, and seasonality to get a forward view.

If your agency is new, it’s possible to make sales projections based on competition, supplier, and industry data.

Projected Expenses

Every agency has expenses, including subscriptions, insurance, rent, and others. Most importantly (and the largest fixed monthly expense) in an agency are staff costs.

Make sure you have a firm grip on your cost base and understand what’s going through your profit & loss in the future.

It’s important to remember here that expenses do not equal cash! Once you know what you’re paying for, you need to know when it’s due for payment (this could be a few months after you start using the service, or could be in advance).

Projected Outgoing Payments

To understand when payments are leaving your bank, review invoice payment terms, check with suppliers, service providers, and the bank. Use this date in your forecast to know exactly when cash will leave your account.

Your staff must get paid at the same time every month. Without fail. They're the largest and most important expense, but also the least flexible. You can't pay them by credit card and the team impact of making mistakes is huge.

If there is one reason to maintain a cash flow forecast as an agency owner, this is it!

Projected Incoming Payments

When working with retainer clients, it’s easy to see patterns in your cash inflows and get comfortable over the timings. This is especially true when you’ve set up the right systems and processes to automatically invoice and collect payments.

For one-off pieces of work, it’s less clear. Look at work in progress and assess how likely on-time payment is using historical client data. You also need to figure out how many of them delay payments or often pay late fees so you can build it into your forecast.

Communication and Good Software

Working with numbers doesn't have to be all papers and spreadsheets like it used to be, thanks to all the technology available today. Make sure you’ve got the right stack of software to make the process slicker and more value-adding.

The accuracy of a cash flow forecast depends on numbers flowing between departments and other stakeholders. If people don’t communicate the right numbers and ignore concerns or inefficiencies, your forecast will reflect the same.

It's key that everyone understands how important their inputs are.

Don’t Sleep on Projections!

You can’t rely on a single cash flow forecast for the duration of your business, it needs to be updated regularly to reflect the latest data. Lots of things can happen week to week, month to month, and year to year. A forecast that looked promising two months ago may not hold true two weeks from now.

A cash flow forecast is a must-have for every agency, and the last year has lifted the lid on how much more proactive, rather than reactive business owners need to be to survive uncontrollable situations.

To really understand your business and ensure its long-term success you need to be calculated and planned. You need complete control of your finances.

When you’re ready …

1. Follow us on Social Media (Links below)

2. Download our eBook ‘The Winning Agency’

This eBook describes what we would call the perfect agency, and has tips and strategies you can install in yours to unlock more profit, grow on a solid financial foundation, and take control of your numbers.

3. Book a free 121 strategy session to explore how your agency can generate more profit, cash, and scale.