Forecasting your cash flow is essential, but doesn’t have to be complicated.
A cash flow forecast gives you a clear picture of what’s coming in, what’s going out, and whether you’ll have enough money to cover your expenses in the months ahead.
In this guide, we’ll walk you through how to build a simple, effective cash flow forecast, even if you’re not a numbers person.
What Is a Cash Flow Forecast?
A cash flow forecast estimates how much cash will come into and go out of your business over a future period, typically the next 3, 6, or 12 months.
It helps you:
- Plan for tax bills, payroll, and major expenses
- See if you’re likely to run into a shortfall
- Make informed decisions about spending or investment
A forecast isn’t just for accountants. It’s a practical tool every business owner should use.
At Legacy Figures Accountancy, we can help you manage your finances, including monthly reporting of your cash flow. Want to learn more? Let’s have a chat.
Step 1: Choose Your Forecast Period
Decide how far ahead you want to plan. Most small businesses use a monthly forecast covering the next 6 to 12 months.
If your cash position changes quickly, start with a 3-month rolling forecast you can update often.
Step 2: Estimate Cash Inflows
List all the money you expect to receive each month. Include:
- Customer payments (based on actual expected dates, not invoice dates)
- Grant income
- Loans or funding
- VAT refunds
- Other income sources
Use past data if you have it, or base it on your sales pipeline and seasonality.
Step 3: Estimate Cash Outflows
Now list your expected expenses, such as:
- Rent or mortgage
- Wages and freelancer payments
- Supplier bills and materials
- Tax and VAT payments
- Software subscriptions and insurance
Include both fixed and variable costs. Be realistic, underestimating expenses is a common mistake.
Step 4: Calculate Your Monthly Cash Position
For each month:
- Start with your opening cash balance
- Add total inflows
- Subtract total outflows
This gives you your closing balance, which becomes next month’s opening balance.
Example:
- Opening balance: £2,000
- Inflows: £5,000
- Outflows: £4,500
- Closing balance: £2,500
Repeat this process across your forecast period.
Step 5: Review and Adjust Regularly
A forecast is only useful if you keep it updated. Check it monthly (or even weekly) to:
- Adjust for late payments or unexpected costs
- Spot trends or patterns
- Make informed decisions on spending or saving
Use it alongside your bank balance, not instead of it.
Tools to Make It Easier
You don’t need fancy software. Start with:
- A spreadsheet (Excel or Google Sheets)
- A template from your bookkeeper or accountant
As you grow, consider using cloud accounting tools like:
- Xero (with built-in or add-on forecasting)
- QuickBooks (cash flow planner feature)
- Float or Fluidly (cash flow forecasting apps)
Final Thoughts: What’s Best for You and Your Business?
Cash flow forecasting is one of the most empowering things you can do as a small business owner.
It gives you visibility, control, and peace of mind so you can stop guessing and start planning.
Start simple. Keep it updated. And get support if you need it.
If you have any questions or need some guidance, get in touch today for a friendly, no-obligation chat.
