To create a cash flow forecast, start with the cash available today, estimate when money will actually be received, list payments by the date they must be made, and calculate the resulting balance for each future period. Then test what happens if sales arrive late or costs increase.
You do not need a finance department to begin. You need reliable source information, realistic timing assumptions, and a short routine for keeping the forecast current.
What does a cash flow forecast tell you?
A cash flow forecast estimates the money expected to enter and leave your business over a future period. It helps answer questions such as:
- Will there be enough cash for payroll and supplier payments?
- When will the bank balance reach its lowest point?
- Can the business afford a hire, inventory order, or equipment purchase?
- What changes if a major customer pays late?
- How much funding might be needed, and when?
The British Business Bank summarises the core process as choosing a period, listing income, listing outgoings, and calculating the running cash flow. Business.gov.au similarly describes a forecast as an estimate of future sales and costs that can help identify potential shortages.
For business operations, one refinement matters: translate sales and costs into the dates cash is likely to move. Revenue forecast for June is not necessarily cash collected in June.
Choose the right forecasting horizon
Use more detail where confidence is highest and less detail further out.
| Horizon | Recommended frequency | Best use |
|---|---|---|
| Next 4–13 weeks | Weekly | Payroll, collections, supplier payments, tax and liquidity |
| Next 3–12 months | Monthly | Budgeting, hiring, investment and seasonal planning |
| Beyond 12 months | Monthly or quarterly | Strategy, funding and capacity planning |
Many small businesses benefit from maintaining both a monthly annual forecast and a detailed 13-week cash flow forecast. The monthly view supports planning; the weekly view protects near-term liquidity.
What information do you need?
You can build a useful first forecast from six sources:
- Current bank balances
- Customer invoices and realistic expected payment dates
- Sales orders, subscriptions, or contracted receipts
- Supplier bills and payment terms
- Payroll, tax, rent, debt, and recurring-payment schedules
- The operating budget and any approved one-off commitments
Reconcile important amounts with your accounting or banking records. A forecast does not need to become a second accounting system, but it does need a trustworthy starting point.
How to create the forecast in seven steps
Step 1: Record opening cash
Enter cash available at the beginning of the first period. Include bank accounts used for operations and exclude restricted amounts.
If you have uncleared payments, overdrafts, multiple currencies, or several entities, document how they are treated. This is an area where an accountant or finance professional can help establish a consistent policy.
Step 2: List expected cash receipts
For each future week or month, list when cash is likely to arrive—not merely when a sale is made.
Useful categories include:
- Cash sales and card settlements
- Customer invoice collections
- Subscription or recurring payments
- Deposits and milestone payments
- Tax refunds or grants
- Loan or investment proceeds
- Asset sales
For customer invoices, consider payment history, disputes, approval requirements, and concentration risk. Mark uncertain receipts as “likely” or “upside” rather than treating them as committed.
Step 3: List expected cash payments
Separate payments into categories that support decisions:
- Payroll and contractors
- Suppliers and inventory
- Rent and facilities
- Software and subscriptions
- Marketing and sales
- Tax and statutory payments
- Insurance and professional fees
- Debt principal and interest
- Equipment and capital purchases
- Owner drawings or distributions
Include annual, quarterly, and one-off amounts. These are frequently missing from a forecast based only on recent monthly averages.
Step 4: Calculate net cash flow
For each period:
Net cash flow = expected cash receipts − expected cash payments
A positive result means the period adds cash. A negative result means it consumes cash. Neither result is automatically good or bad; context matters.
Step 5: Calculate closing cash
Closing cash = opening cash + net cash flow
Carry closing cash into the next period as opening cash. Continue through the entire horizon.
Do not stop after calculating total cash movement. Find the lowest closing balance, because that is when the business has the least room for error.
Step 6: Compare with a minimum cash threshold
Choose a threshold that triggers management attention before cash reaches zero. It might cover several weeks of essential payments, but it should reflect your business’s volatility and response time.
When forecast cash falls below the threshold, quantify the gap:
Cash gap = minimum cash threshold − forecast closing cash
Then identify the few receipts, payments, or assumptions that drive it.
Step 7: Test what-if scenarios
Scenario analysis turns the forecast into a decision tool. Begin with three versions:
- Base case: the most likely operating outcome
- Downside case: slower collections, lower sales, or higher costs
- Action case: the downside plus realistic management responses
For example, test:
- A major customer paying 15 days late
- Sales collections 10% below plan
- A supplier price increase
- Hiring one month earlier or later
- A large purchase paid upfront versus in installments
- A change in customer or supplier payment terms
Avoid building dozens of scenarios. Focus on uncertainties large enough to change a decision.
Cash flow forecast example
Northstar Studio has $80,000 in opening cash and prepares a four-month forecast.
| Month 1 | Month 2 | Month 3 | Month 4 | |
|---|---|---|---|---|
| Opening cash | $80,000 | $73,000 | $66,000 | $87,000 |
| Customer collections | $62,000 | $70,000 | $91,000 | $78,000 |
| Other receipts | $0 | $5,000 | $0 | $0 |
| Total receipts | $62,000 | $75,000 | $91,000 | $78,000 |
| Payroll and contractors | ($39,000) | ($42,000) | ($43,000) | ($44,000) |
| Suppliers and operating costs | ($24,000) | ($25,000) | ($23,000) | ($26,000) |
| Tax, debt and one-offs | ($6,000) | ($15,000) | ($4,000) | ($8,000) |
| Total payments | ($69,000) | ($82,000) | ($70,000) | ($78,000) |
| Net cash flow | ($7,000) | ($7,000) | $21,000 | $0 |
| Closing cash | $73,000 | $66,000 | $87,000 | $87,000 |
The four-month ending balance looks comfortable, but month two is the lowest point. If a $30,000 customer receipt moves from month two to month three, month-two cash falls to $36,000.
If Northstar’s minimum threshold is $50,000, the base case is acceptable but the delayed-collection case requires action. Possible responses include resolving the invoice earlier, changing the timing of a discretionary payment, staging a purchase, or arranging a funding buffer.
How to make estimates more realistic
Forecast existing customers, pipeline, and future sales separately
Existing contracted customers are generally more predictable than open opportunities. Build revenue assumptions in three layers:
- Existing customers, including renewal, churn, and expansion
- Sales pipeline, weighted by probability and expected timing
- New business not yet in the pipeline, based on pricing, volume, and channel assumptions
Then translate each layer into billing and collection dates.
Use actual collection patterns
If a customer usually pays 10 days after the due date, do not assume the next invoice will arrive exactly on time without evidence. Plan receivables explicitly and update assumptions when behavior changes.
Link variable payments to operational drivers
Some payments move with sales, headcount, orders, or usage. Model them using the relevant driver rather than a flat average.
Model payroll from people, not percentages
Include start dates, departures, bonuses, employer costs, and contractors. Hiring decisions can change the forecast before they change revenue.
Maintain an assumptions log
Record the source, owner, confidence, and last update for material estimates. The purpose is accountability, not bureaucracy.
How to update the forecast without losing every Friday afternoon
Use a simple weekly routine:
- Import or record actual cash movements.
- Compare them with the prior forecast.
- Explain the largest differences.
- Update unpaid invoices and supplier due dates.
- Revise assumptions only when new evidence appears.
- Roll the forecast forward.
- Record decisions and owners.
The forecast should become easier to maintain over time. If it becomes more complex every week, remove detail that does not support an action.
Common cash flow forecasting mistakes
- Copying the P&L budget without adjusting timing
- Treating every issued invoice as certain cash
- Omitting taxes, debt principal, annual fees, and asset purchases
- Using best-case sales to fund fixed commitments
- Updating numbers without explaining variances
- Changing the original budget instead of preserving it for comparison
- Keeping the model solely in the owner’s head
- Confusing forecast precision with forecast usefulness
What to do this week
- Choose weekly or monthly periods and a forecast horizon.
- Confirm unrestricted opening cash.
- Add expected customer collections by realistic receipt date.
- Add payroll, supplier, tax, debt, and recurring payments.
- Calculate net and closing cash for each period.
- Mark the lowest cash point and compare it with your threshold.
- Test one late-customer scenario.
- Decide who updates the forecast and when.
- Ask your accountant to review any material accounting, tax, or financing assumptions.
Frequently asked questions
What is the simplest cash flow forecast formula?
Opening cash plus expected receipts minus expected payments equals closing cash. Repeat the calculation for each future period, carrying one period’s closing cash into the next as opening cash.
Should a forecast be weekly or monthly?
Use weekly periods for near-term liquidity and monthly periods for longer planning. Businesses with tight cash, large individual invoices, or concentrated payment dates usually benefit from a rolling weekly view.
Is a cash flow forecast the same as a budget?
No. A budget sets financial expectations, often using accrual-based revenue and expenses. A cash flow forecast estimates when money will actually be received or paid. Link the two, but preserve their different purposes.
What if the business has very little historical data?
Use contracts, invoice terms, current pipeline, supplier quotes, payroll plans, and conservative assumptions. Keep the horizon short, label uncertainty, and update frequently as actual evidence develops.
Does a forecast replace an accountant?
No. It supports operating decisions. Accounting records, tax treatment, statutory reporting, and complex financing matters should remain under appropriate professional processes.
Move from maintaining a forecast to operating from it
As transactions and commitments grow, manual forecasting can become repetitive. CashCatalyst helps business owners and non-finance teams maintain forward cash visibility through forecasting, what-if analysis, AP and AR planning, and budget planning. AI-assisted workflows reduce routine extraction, organization, and analysis so the team can focus on decisions, while remaining compatible with professional accounting practices and finance tools.
Sources and editorial note
- British Business Bank: How to create a cash flow forecast in four steps
- Business.gov.au: Set up a cash flow statement
- IFRS Foundation: IFRS for SMEs—Module 7, Statement of Cash Flows
- CPA Australia: Access to finance—tips for small and medium businesses
This article provides general educational information, not accounting, tax, legal, or financial advice. Forecast assumptions and obligations differ by business and jurisdiction; consult a qualified professional for decisions material to your circumstances.