How to forecast your cash flow

If cash is the lifeblood of a business, the cash flow forecast is like a heart rate monitor.

It’s one of the most useful benchmarking tools available to small business owners because you can compare your forecasts with the actual performance of your business to track your progress or identify areas that need work.

However, cash flow forecasts are entirely dependent on the quality of the information they’re based on. If data included in them is simply based on snap judgements and assumptions, the cash flow forecast itself will be of little value.

You need to base your sales and cost projections on detailed analysis, whether you have a sales track record to fall back on or you’re researching the market to find the evidence you need. A cash flow forecast can be used in many ways to help you run your business in the short term and strategise for the long term.

Cash flow forecast template

You can download our cash flow forecast template below. This projects the cash going in and out of a business, and the cash surplus (or deficit) that could be created, is one of the core tools available for small business owners to steer their businesses to success.

Cash flow forecasts can help you identify when you’ll have peak income and peak outgoings so you can plan ahead for special projects, campaigns, and changes to your business that require extra cash. In addition, they can help you avoid unpaid bills and other commitments by identifying whether you’ll have the cash to pay them long before they’re due.

Of course, cash flow forecasts also incorporate cash cycles so you can use them to measure payments from people who owe you money too. However, the pivotal value of cash flow forecasting resides in its usefulness as a benchmarking tool.

Once you complete your forecast, you can come back to it, compare it with your business’s actual performance, and continue to improve your forecasting skills. The better your forecasting skills, the fewer surprises in store for you in the future.

Download the template