Cash flow forecast for a group of companies: how to build it
A cash budget shows whether the money lasts according to plan. A cash flow forecast shows whether it lasts given what you know today. In a group, both should be readable per company and for the group, without counting intercompany loans twice.
Most groups have a good grip on profit and a weaker one on cash. Profit is followed up against budget every month, while liquidity often lives in a spreadsheet the finance lead updates when things get tight. That works while the companies are few and margins are good. Once the group grows, acquires companies or lends money between them, the spreadsheet becomes too slow and too hard to trust.
This guide covers what separates a cash budget from a cash flow forecast, which items to include, what is particular to a group and how to keep the forecast current.
Cash budget and cash flow forecast: what is the difference?
A cash budget is made once a year, usually together with the profit budget. It turns the plan into money in and money out month by month, and shows whether the company needs to borrow or can repay during the year.
A cash flow forecast is updated continuously. It starts from today's bank balance and from what you know now: unpaid customer invoices, supplier invoices falling due, salaries, VAT and tax. The forecast answers whether the money lasts over the coming weeks and months, taking into account what has actually happened.
| Cash budget | Cash flow forecast | |
|---|---|---|
| Purpose | Turn the year's plan into money | See whether the money lasts given what you know today |
| Starting point | Budgeted profit and planned investments | Today's bank balance and open invoices |
| Updated | Once a year, sometimes at half-year | Every week or every month |
| Horizon | The budget year, month by month | 13 weeks ahead, then month by month |
| Used for | Funding needs, talks with the bank | Payment planning, credit facility, dividends |
Which items to include
A cash flow forecast is easiest to build with the direct method: receipts and payments sorted by when the money actually moves. It is easier to read than the indirect method, which starts from profit and adjusts for working capital, and it can be reconciled against the bank afterwards.
Receipts
- Customer payments, spread by due date and by how late customers usually pay.
- Other receipts, such as asset sales, grants or interest income.
- New loans, share issues and shareholder contributions.
- Intercompany receipts from other group companies, such as loans, dividends and group contributions.
Payments
- Supplier invoices, by due date.
- Salaries, payroll taxes and pension premiums.
- VAT, preliminary tax and other taxes, with dates from the tax account.
- Rent, leasing and other fixed costs.
- Investments and acquisitions.
- Interest and loan repayments.
- Intercompany payments to other group companies.
What is particular to a group
A group has the same items as a single company, plus a few that make it harder to add up.
- Intercompany loans and invoices. When the parent lends money to a subsidiary, it is a payment in one company and a receipt in the other. Add the companies up directly and the group appears to have larger flows than it has. Intercompany flows should show per company but be removed in the group's total forecast.
- Group account or cash pool. With a group account, one company can be overdrawn while the group has plenty of cash. The forecast needs to show both each company's balance and the shared headroom, or you will miss when a single company approaches its limit.
- Group contributions and dividends. They move money between companies and affect when tax is paid. Add them as separate dated rows, not as a year-end adjustment.
- Currency. Companies in other countries are translated into the group currency before they are added up. Use the same rates as in the rest of the group reporting so the forecast can be compared with actuals.
- Acquisitions. A new company often comes with its own finance system, bank accounts and credit agreements. The forecast should be able to take it in from the completion date without anyone rebuilding the spreadsheet.
The rhythm: week by week up close, month by month further out
Most people working with liquidity in a group end up with two horizons. The next 13 weeks are followed week by week, since that is where salaries, VAT and large supplier payments decide whether the account holds. The rest of the year is followed month by month, as a basis for funding, investments and dividends.
Update the short horizon every week. Then compare last week's forecast with what actually happened in the bank. The difference shows where the assumptions fall short, most often in how fast customers pay.
Why the spreadsheet stops being enough
A spreadsheet can calculate a cash flow forecast, that is not the problem. The problem is that every update needs new exports from the accounting, the bank and the tax account for every company, and that intercompany items have to be reconciled by hand. When updating the forecast takes half a day, it gets updated once a month, and then it is no longer a forecast.
It is also hard to see where a number comes from. When the bank or the board asks why cash is expected to drop in March, you should be able to trace it back to invoices and assumptions, not to a cell only one person understands.
How it works in Fintower
In Fintower, actuals are pulled automatically from each company's finance system, such as Fortnox, Visma or Business Central. Bank balances and transactions come from the bank connection, and for Swedish companies the tax account balance and upcoming taxes with due dates come from the Swedish Tax Agency. You build the forecast with your own assumptions per company, and the group forecast is added up with intercompany items removed.
Because budget, forecast and group consolidation sit in the same platform, the same group chart of accounts and the same exchange rates are used in all three. You can set up scenarios, such as an acquisition or a lost customer, and see what they mean for cash in each company.