Cash Flow Forecast: What It Is and How to Build One

More businesses fail from running out of cash than from a lack of profit — and almost always, they didn’t see it coming. A cash flow forecast is the simple tool that stops that happening. Here’s what it is and how to build one.

What is a cash flow forecast?

A cash flow forecast projects the money moving in and out of your business, usually month by month for the next 6–12 months. It shows your expected cash balance at each point, so you can spot a shortfall — or a surplus to put to work — before it arrives.

The crucial word is timing. It’s not about whether you’re profitable; it’s about whether you’ll have the cash when you need it.

Cash flow vs profit — the gap that catches people out

This is the distinction that sinks otherwise-healthy businesses:

• Profit is income minus costs over a period
• Cash flow is the actual movement of money, and when it happens

You can be profitable on paper but short of cash — because a customer pays 60 days late, or you bought stock upfront, or a VAT bill lands. The forecast captures that timing gap.

How to build one

You don’t need anything fancy — a spreadsheet works:

1. Start with your current bank balance.
2. List cash inflows by month — when customers actually pay (not when you invoice).
3. List cash outflows by month — wages, suppliers, rent, loan repayments, and don’t forget tax (VAT quarters, Corporation Tax, Self Assessment).
4. Calculate each month’s closing balance — it carries into the next month as the opening balance.
5. Look for the dips — any month where the balance goes negative or uncomfortably low is a warning to act now.

The accuracy comes from realistic timing — model when money truly moves, including the lag between invoicing and payment.

Using it well

A forecast is only valuable if you use and update it:

• Review monthly against what actually happened, and adjust
• Stress-test it — what if your biggest customer pays a month late?
• Act early on warnings — chase debtors, delay non-essential spend, or arrange finance before you need it

From forecast to financial control

A cash flow forecast is one part of seeing your business clearly — it works best alongside regular management accounts and clean bookkeeping, so the numbers you forecast from are accurate and current.

If you’re flying blind on cash, our management accounts and Virtual FD service builds and maintains your forecast, flags problems early, and gives you the financial control that lets you grow with confidence. Our small business accountants can set it all up for you.