A cash-flow forecast shows when money is expected to enter and leave your business, and the bank balance that should remain. It helps you test whether you can pay wages, tax, suppliers and new commitments before they fall due. Base it on realistic receipts and payment dates. Keep the sales target separate: a target can motivate the team, but it cannot pay a bill.
The danger is not always that you forgot to forecast. Sometimes you made a forecast, believed the sales target and spent against it.
We’ve seen a business nearly run out of cash after forecasting €180,000 of third-quarter sales and closing €90,000. The pipeline was real, but the owner used it to plan spending, hired two people and planned a bigger office. By October, the business was scrambling. Keep a conservative baseline for running the business, with the growth target in a separate scenario.
If your forecast only works when every promising sale closes on time, it is not giving you much protection. Our management accounts and reporting support is about making those decisions with a clearer view of the numbers.
What is a cash-flow forecast?
It is a forward view of cash receipts and payments, organised by the week or month in which you expect them to happen.
Start with the actual bank balance at a stated date. Add expected receipts. Subtract expected payments. The closing balance becomes the next period’s opening balance.
Opening cash + receipts − payments = closing cash.
A profit and loss statement answers a different question. You can record a profitable sale today and wait weeks for the money. You can also make a loan repayment that uses cash without the full repayment appearing as an expense in the profit and loss account.
The forecast needs the cash movements, including stock purchases, equipment, tax and loan repayments. Profit alone will not supply them.
Why is a cash-flow forecast important?
It gives you time to act. Finding out about a cash shortfall six weeks ahead is different from discovering it on payroll day.
You can bring an invoice forward where the contract allows, chase an overdue balance, change a stock order, delay an optional commitment or discuss funding. Those choices become narrower once the payment is due.
It also helps you test growth. Before approving a hire or a new premises, ask when the extra costs start and when the extra receipts arrive. Revenue growth can need cash before it produces cash.
How to create a cash-flow forecast
Start with a bank balance you can reconcile
State the forecast’s start date and agree the cash balance to the bank accounts included. Identify restricted cash separately. Show any overdraft balance and facility clearly rather than treating an unused facility as cash already received.
If you start partway through a month, include only the remaining movements from that date. Do not add the month’s receipts again when some are already in your opening balance.
Put receipts in the week you expect payment
Start with outstanding invoices, contracts and the way customers actually pay. An invoice due in 30 days is not proof that cash will arrive in 30 days.
Separate committed business from the pipeline. For prospective work, state the assumption about winning it, starting it, invoicing it and collecting it. A single expected sales figure hides four different risks.
For online sales, account for payment-provider settlement delays, fees, refunds and reserves. For projects, use billing milestones and deposits. Our accounts receivable guide covers the collection side in more detail.
Include payments that do not happen every month
Wages and rent are easy to remember. Annual insurance, equipment, loan repayments and tax can cause the surprise.
Put VAT, payroll taxes and Income Tax or Corporation Tax into the payment periods agreed with your accountant. Use your business’s actual liability and filing position rather than assuming every business has the same tax dates. See our preliminary tax guide for the distinction between a tax balance and a payment towards the current year.
Use a consistent VAT basis. If customer receipts and supplier payments include VAT, include the expected VAT payment or refund separately. Do not mix VAT-inclusive cash receipts with VAT-exclusive supplier costs.
Keep borrowing and owner movements visible
Show loan proceeds, repayments, capital introduced and drawings or dividends as separate cash lines. Do not use them to disguise a trading shortfall.
Agree planned owner withdrawals with your accountant and show when the cash leaves. Keep them separate from the cost of running the business.
A simple cash-flow forecast example
The following illustration uses cash amounts, including VAT where relevant. Tax is shown when paid. It is not a client case or an assumed tax calculation.
| Cash movement | Month 1 | Month 2 | Month 3 |
|---|---|---|---|
| Opening cash | €30,000 | €35,000 | €10,000 |
| Customer receipts | €70,000 | €60,000 | €80,000 |
| Suppliers and stock | €30,000 | €35,000 | €30,000 |
| Payroll and overheads | €30,000 | €30,000 | €30,000 |
| Tax payments | €0 | €15,000 | €0 |
| Loan repayments | €5,000 | €5,000 | €5,000 |
| Total payments | €65,000 | €85,000 | €65,000 |
| Net cash movement | €5,000 | −€25,000 | €15,000 |
| Closing cash | €35,000 | €10,000 | €25,000 |
The business finishes Month 3 with €25,000. That does not make Month 2 comfortable. If €20,000 of Month 2 receipts slips into Month 3, Month 2 closes at −€10,000 instead. Month 3 can still finish at €25,000 if the money then arrives as expected.
The final balance hides the intervening funding need. A monthly total can also hide a shortfall within the month, which is why payment weeks matter when cash is tight.
The three-scenario approach
Keep the baseline, good case and bad case from the original forecast approach. Make the assumptions different, not just the total at the bottom.
| Scenario | What goes into it | Decision it supports |
|---|---|---|
| Baseline | Realistic receipts, known commitments and clearly stated assumptions | What you can commit to now |
| Good case | More work closes, with the extra delivery costs and collection dates included | What you can accelerate if growth arrives |
| Bad case | A major receipt is late, sales weaken or a cost rises | What you would change, and when |
Do not put all the upside into receipts while leaving costs unchanged. More orders may need more stock. More projects may need contractors. The good case must fund its own delivery.
Agree a minimum cash buffer and the point at which you will act. If the bad case takes you below that buffer, identify the decision now. Waiting to see whether it happens is itself a decision.
How far ahead should you forecast?
A useful starting point is a rolling 13-week forecast by week for near-term commitments, alongside a 12-month view by month for tax, seasonality and growth.
Use more detail where the risk sits. An agency needs to see project starts, payroll and payment milestones. An ecommerce business needs stock orders and payout timing. A seasonal business needs to fund the quieter period, not just model the busy one.
A technology business expecting a grant or R&D tax credit should distinguish the expected entitlement from the date cash will arrive. Put a delay into the bad case rather than assuming a review will finish when you need the money.
How often should you update the forecast?
Review the short-term forecast weekly when commitments or cash are changing quickly. Refresh the longer view monthly. Update either immediately when a material sale, payment or cost changes.
Compare the last forecast with what actually happened. Was the difference a lost sale, a late receipt, a cost increase or an assumption that never made sense?
Give someone responsibility for the update and someone authority to make the resulting decision. A forecast that nobody owns will soon become last month’s spreadsheet.
Tools and software for cash-flow forecasting
A spreadsheet can work when the business is straightforward and someone maintains it properly. A connected forecasting tool can reduce repeated data entry and make scenarios easier to update.
Choose around the decisions you need to make: weekly receipts, stock commitments, separate entities, scenarios and who reviews the result. Do not assume a bank-feed connection produces a reliable future forecast. It still needs assumptions about work not yet invoiced and payments not yet made.
Our accounting software guide covers the wider systems choice. Keep the forecast’s assumptions visible whichever tool you use.
What useful finance support should give you
You should be able to ask: can we afford this hire, what happens if this customer pays late, and when will tax use the cash?
If the answer is only that last year’s accounts have been filed, the forward-looking part of the job is missing.
If you need someone to own that work, compare outsourced finance with hiring in-house before deciding what role to recruit for.
FAQs
A forecast follows expected cash receipts and payments. A profit and loss statement measures income and expenses for the period, which can include sales you have not collected and expenses that do not involve an immediate cash payment.
Yes. Customer payments may arrive after wages, stock or tax are due. Growth can increase the gap. Forecast the payment dates as well as the expected profit.
It needs to be useful enough to support decisions. State the assumptions, compare them with actual receipts and payments, and test the consequences when they change. A precise-looking spreadsheet based on uncertain sales is not reliable.
Yes. Start with a reconciled opening balance and dated receipts and payments. Get help with tax, borrowing and more complex assumptions where needed. The monthly example above shows the basic format.
Choose a tool that lets you model the quiet period, stock commitments, weekly cash timing and different sales scenarios. The quality of those assumptions matters more than the product name.
Include only the amount and timing you can reasonably support, with the assumption stated. Keep an ambitious sales target in the good case. Do not commit spending as though every opportunity has already paid.
