How to create a cash flow forecast in 4 steps (2024)

You use a cash flow forecast to predict the cash that’s going out of your business and coming back in over a specific period.

As a result, when creating one of these forecasts, you must make sure it covers a period that’s at least as long as your cash flow cycle.

This is the amount of time it takes cash leaving your business to come back in, hopefully with some profit.

Below, we’ve laid out the four simple steps needed to build your own cash flow forecast.

However, before you go ahead with it, it’s always best to seek advice from a qualified accountant.

Cash flow forecasts are an area of expertise for them, and a good accountant may be able to add insights that you lack.

1. Decide the period you want to plan for

Cash flow planning can cover anything from a few weeks to many months.

Plan at least as far ahead as your cash flow cycle lasts and try to be as accurate as possible.

If you’re a new business, you might not have a huge amount of data to go on – so the further out you go, the less accurate your predictions are likely to be.

Don’t worry too much if you can’t plan far ahead.

Your cash flow forecast can change over time.

In fact, for it to be a useful tool, you should look to update it as regularly as you can.

As things change, or you get more exact estimates, you can revise your plan accordingly.

2. List all your income

For each week or month in your cash flow forecast, list all the cash you have coming in.

Have one column for each week or month, and one row for each type of income.

Start with your sales, adding them to the appropriate week or month.

You might be able to predict this from previous years’ figures, if you have them.

Remember though, this is about when the cash is actually in your bank account.

Put the figures in for when you know clients will pay invoices, or bank payments will clear.

Also remember to include all non-sales income, for example:

• tax refunds
• grants
• investment from shareholders or owners
• royalties or licence fees

Add up the total for each column to get your net income.

3. List all your outgoings

Now you know what’s coming in, work out what you have going out. For each week or month, make a list of all the money you’ll be spending, for example:

• rent
• salaries
• raw materials
• assets
• bank loans, fees and charges
• marketing and advertising spend
• tax bills

Once you’ve listed everything you spend, add up the total for each column to get your net outgoings.

4. Work out your running cash flow

For each week or month column, take away your net outgoings from your net income.

That will give you either a positive cash flow figure (when you have more cash coming in than you’re spending) or a negative cash flow figure (you’re spending more than you have coming in).

You can then keep a running total, from week to week, or month to month, to get a picture of your cash flow forecast over time.

Too long a period of negative cash flow could cause trouble, and you’ll need to do some forward planning to make sure you have enough working capital (cash available to meet the everyday needs of your business) – for example, to pay for supplies, salaries, rent or service loans.

Excel spreadsheets

These days, most businesses use a program such as Microsoft Excel to create a cash flow template.

The beauty of using this type of software is that you can configure it so that, when you update either your income or spending, it automatically recalculates your cash flow.

If it all sounds rather complicated, there are videos on YouTube that explain it in more detail.

Here are two of them:

• BookkeepingMaster: How to create a cash flow forecast using Microsoft Excel
• Two Teachers: How to complete a cash flow forecast