How to forecast your cash flow

Understand what a cash-flow forecast is

A cash-flow forecast projects the actual money moving in and out of your bank account over a future period — not profit, not invoiced sales, but cleared cash. The distinction matters: a profitable business can still run out of money if customers pay slowly while bills fall due. Liquidity, not profitability, is what keeps the lights on.

The forecast answers one question: will I have enough cash in the bank, on each date, to meet what I owe? Done regularly, it turns cash from a source of nasty surprises into something you manage on purpose. It's also the document a lender most wants to see when you ask for working-capital finance, because it shows you understand your own rhythm.

Choose your period and starting balance

Pick a horizon and a granularity that match your need. A 13-week rolling forecast, reviewed weekly, is the standard for short-term cash management — long enough to see trouble coming, short enough to be accurate. For planning a year ahead, a monthly 12-month view works better.

Start from a hard fact: your actual cash balance today, taken straight from your bank account. Everything else builds on this opening figure, week by week:

1. Take the closing balance of each week.
2. Carry it forward as the opening balance of the next.
3. Add that week's inflows, subtract its outflows.

Getting the starting number right matters — a forecast built on a guessed opening balance is wrong from line one.

List your cash inflows

Inflows are every source of cash arriving, dated to when it actually lands — not when you raise the invoice. This is where forecasts most often go wrong, because optimism creeps in. Be realistic about timing.

• Customer receipts — based on real payment behaviour, not your terms. If customers on 30-day terms typically pay in 45, forecast 45.
• Cash sales and card takings.
• Other income — grants, interest, refunds, tax rebates.
• Any finance drawdowns you expect to receive.

If you have receivables tied up in slow-paying invoices, model their real arrival dates honestly. Forecasting cash in on the due date when experience says otherwise is the quickest way to build a forecast you can't trust.

List your cash outflows

Outflows are every payment leaving the account, again dated to when the money actually goes. Capture the regular and the lumpy alike — it's the lumpy ones that cause the trouble:

• Payroll and associated PAYE/NIC.
• Supplier payments, dated to your real payment runs.
• Rent, utilities, software and subscriptions.
• VAT, Corporation Tax and other HMRC payments — these land in big, predictable lumps.
• Existing loan or finance repayments.

Don't forget the irregular outgoings: quarterly VAT, annual insurance, equipment purchases. These are exactly the dates where a healthy-looking business suddenly dips into the red. Mapping them now is the whole point of the exercise.

Project the balance and spot the gaps

With inflows and outflows dated, calculate each period's net cash movement and roll it into a running balance. Now read the line across time and look for the moments it goes negative or uncomfortably low.

Those troughs are your forecast's payoff. A dip three weeks out, when a VAT bill collides with payroll before a big customer pays, is a problem you can now solve calmly rather than scramble through. Options include chasing receivables earlier, agreeing supplier terms, timing a discretionary spend differently — or arranging a flexible working-capital facility to bridge the gap. The forecast doesn't just warn you; it tells you exactly how much you need and for how long.

Stress-test and keep it live

A forecast is a model, and reality will differ — so test how fragile it is. Run a few simple scenarios: what if your biggest customer pays two weeks late? What if sales dip 15% next quarter? What if a key supplier wants payment upfront? If a single plausible knock pushes you into the red, you're running with too little headroom and should build a buffer or a standby facility now.

Finally, keep it live. A forecast written once and filed away is worthless. Update it weekly with actuals, roll the window forward, and compare forecast to reality so your projections get sharper over time. A maintained forecast is one of the most valuable management tools a small company has — and it makes every future finance conversation far easier.