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How To Forecast Cashflow For Your Business

How To Forecast Cashflow For Your Business

‘Cash is King’ is a saying that everyone has heard, but if you are a small business owner, keeping cash flowing is about as crucial as it gets when it comes to running a successful business. Read on for simple tips on how to forecast cashflow for your business so that it doesn’t end up in crisis by spending more than it brings in.

  • Decide on your cash flow forecasting time-frame, this can be monthly, 6 monthly, a year or longer
  • Record your expected income by week or month for your chosen reporting time-frame 
  • Record your known and expected expenditure by week or month for your chosen reporting time-frame
  • Calculate working cash flow by subtracting net outgoings from net income
  • Regularly review your cash flow forecast and update it so it remains an accurate reflection of your business finances 
  • Make plans to ensure negative cash flow periods are short and can be balanced by pro-active planning or periods of positive cash flow at other times of the year. 


Whilst financial forecasting is vital to all businesses, understanding cash flow is particularly important for startups, businesses that are undergoing rapid expansion, and seasonal businesses. In all of these cases, cash in and out can be erratic or subject to swings of highs and lows which will need to be accounted for and balanced across the forecasting period to ensure that the overall accounting picture is positive. 


Cash flow Basics 

The primary objective of a cash flow forecast is to ensure that your business stays financially balanced by knowing how funds flow in and out of your accounts. Knowing what expenses the business has and when they’re due to be paid in conjunction with how much income is being generated and when it’s likely to reach your bank account over a period of time is referred to as a cash flow forecast. 

Knowing when cash is expected to come in and leave the business over a given period will enable you to take steps to either increase income or reduce expenditure as required. The action that you will need to take will be based on what your forecast tells you about the amount of cash the business is projected to hold at any one time in the forecasting period. 

Good financial forecasting can help to ensure that you don’t end up in a cash flow situation where you spend more than you earn, which can ultimately be detrimental to your business continuity when this happens over an extended period.    

If you don’t want to end up as one of the 82% of businesses that fail because of poor cash management, here, we cover the simple tips outlined above to help manage cash flow in more detail. 


What Is Cash Flow?

Cash flow is a term used to describe the movement of money in and out of your business. The goal of a successful business is to maintain adequate cash flow to meet the business’s needs. Cash received is classed as income or inflows and money spent is classed as expenditure of outflows. When expenditure is deducted from income, the net amount of cash left over is available to spend, save or invest as appropriate.  

Why Is Cash Flow Important? 

Cash flow is important because the amount of money moving in and out of your business determines how much cash you have available to spend on meeting the day to day running costs such as wages, rent and buying stock or supplies, as well as helping to determine when to make big business decisions such as if you can expand your business by opening up new offices or product lines. 

Cash is needed to do all of these things, and a cash flow forecast will help you to see if and when you’re likely to run out of money to meet your obligations. This outcome alone makes cash flow forecasting one of the most important objectives of small business accounting. 

If there is a negative difference between the amount of cash coming in and the amount of cash going out, it’s going to be hard to pay your bills and maintain your business for an extended period without taking steps to improve your cash flow. Having information about your projected cash flow ahead of time means you can prepare and take action to prevent running into this kind of cash flow difficulty.

The other side of cash flow forecasting is that it enables you to see when you are likely to have enough cash to make decisions around investing further into your business. This could be hiring new staff, buying new premises, exploring new markets or increasing product/service lines for example.  

Ultimately, cash flow determines the success of day to day running and long term business operating plans. 

Forecasting Tips For Your Business 

Cash forecast graph

When completing your cash flow forecast, follow the steps below to ensure you have an accurate picture of money coming in and out of your business over a given period. 

Decide your cash flow forecast time frame

This could be 1 month, 6 weeks, 3 months, 6 months, 1 year or longer but it pays to plan as far ahead as possible whilst balancing the accuracy of your forecast. If you have been in business for several years you will be able to reflect on previous data, whereas if you are a new business, you may not be able to forecast very far into the future. However long your forecast timeframe is, just be sure to update it regularly (at least monthly), to reflect changing income and expenses so that your cash flow forecast remains as accurate as possible. 

List Your Income

The next step is to record the cash that you have coming in, your income, for each week or month in your chosen cash flow forecasting timeline. For example, if you did a monthly cash flow forecast, you might break it down to show money in and out over each week within the month. If doing a yearly cash flow projection, you may break it down into 52 weeks or 12 months. 

When listing your income, start with your sales and log them in the relevant week or month that you expect to receive the money into your bank account. Then add in other non-sales income such as grants, investments from business owners, tax refunds etc. The combined total of sales and non-sales will be your net income amount. 

List Your Outgoings 

To list your outgoings, repeat the process outlined above for listing your income but instead of recording when you expect money to hit your account, you are logging when you expect the cash to leave your accounts when paying for recurring and ad-hock business expenses and running costs. Break these expenses down into categories such as utilities, salaries, pension contributions, stock, materials, bank fees and loan repayments, marketing spends and tax bills. The combined total of expenditure will be your net outgoings. 

Calculate Working Cash Flow

Now that you have worked out your net income and outcome for the reporting period, you can work out if you have a positive or negative cash flow figure for each week or month that the forecast covers. When subtracting the net outgoings from the net income, a positive cash flow amount will show that you have more cash coming into the business than going out but a negative cash flow amount indicates that your expenses are higher than your income. Whilst this may be ok for a few weeks or months, long term negative cash flow will cause problems for your business and needs to be addressed as soon as possible. 

Regularly Review Your Forecast And Be Proactive 

Set aside time every month or more regularly if you have a lot of outgoings or are a new business to check if your income is high enough to cover expenses. Your cash flow forecast will help you to understand and predict how funds flow in and out of your business. If you spot times of the year where cash flow looks to be negative, consider ways to adjust the balance by reducing working hours during this time, finding additional income from loans or director investment or launching new projects or services that may boost income to carry you through lower-income periods whilst being able to meet your outgoing financial obligations. 


How To Improve Cash Flow

two signs showing income and expenses

Your business will always have things, services and people to spend money on, but bringing money is harder than spending it. For example, utility bills, lease payments and wages are some of the most common ongoing outgoings for businesses, but keeping a regular and sustained income when clients change, accounting for seasonal fluctuations in demand, and changing workloads is much harder. 

The best way to improve cash flow is therefore to be proactive in managing cash in and out of your business, pay attention to key performance indicators for your business, and be aware of wider economic changes that will affect it. You should also try and keep a cash ‘buffer’ in your accounts that could help your business to operate through times of unexpected outgoings or unprecedented hardship. 

By looking ahead with these things in mind, and asking yourself what would happen if your projected cash flow dropped by X amount, you can spot early warning signs of a potential cash flow crisis and take steps to address it before it affects your business. 

One of the easiest ways to be proactive about managing cash flow is to find ways to either generate more income or reduce expenses, and we’ve covered both options in more detail below. 

Simple Ways To Improve Cash Flow By Increasing Income   

One way to improve cash flow is to generate more income from new investments or sales or to shorten the amount of time it takes expected income to reach you. Some simple ways to do this include; 

Collecting Money From Debtors Quickly

Invoicing on time and being proactive in chasing overdue invoice payments can help to improve the level of, and efficiency of cash coming into your business. A simple way to aid timely payments is to offer discounts for early payments, use accounting software to automatically send invoice reminders and include notifications of late payment fees within your payment terms on the invoices that you send out. 

 Check Credit Accounts Carefully

If you choose to offer credit to your customers, make sure that you complete robust credit checks first. This will help you to make an informed decision as to whether the customer is going to be able to settle their account with you. If customers repeatedly pay late or don’t settle their accounts in full you may choose to remove their credit facility. 

Deposits For Large Orders

Consider requesting a deposit for large orders or projects where you need to order parts and materials in advance, or will be supplying services over a long period before the job is completed. The outstanding amount can then be invoiced on completion of works and this method of invoicing ensures you have some control over when you will receive payment. 


Simple Ways To Improve Cash Flow By Reducing Expenses 

On the other side of the coin, you can also improve cash flow by reducing your expenses and cutting overheads which will enable you to hold cash in the business for a longer time. Some simple ways to reduce business expenses or hold cash in the pipeline longer include; 

See If Supplier Payment Terms Can Be Extended

If you are struggling to pay your invoices from suppliers due to poor cash flow, then you can ask for an extension to their payment terms. Payment terms are usually 30 days but some companies, particularly larger ones are happy to extend this to 60 or 90 days. This adjustment would enable you to keep cash in your pipeline for longer without negatively affecting your reputation with your suppliers and is a useful lifeline to have when you need to cover expenses during periods of lower-income.  

Negotiate Contracts And Discounts 

Every business has recurring contracts and agreements such as lease payments, materials or stock costs. If your cash flow is struggling, it’s always worth asking lenders, landlords, suppliers and contractors that you rely on to run your business if the amount that you pay them can be negotiated to a more favourable rate. 

The best time to do this is at the point of contract renewal or before making a new purchase, particularly if you have been a customer for a long time, but if cash flow is an issue, don’t be afraid to ask the question earlier. Reducing costs in this way is a great way to free up cash that you have to spend on other areas of your business. 


Business owners need to analyse their cash flow regularly and most accounting software packages have forecasting tools to help you do this. Knowing how to forecast cashflow for your business is critical to understanding how much cash is moving in and out of the business over a given period of time. 

Forecast your cash flow by: 

  • Deciding on your cash flow time-frame
  • Record your known and expected income by week or month to workout net income
  • Record your known and expected expenditure by week or month to workout net outgoings
  • Calculate working cash flow by subtracting net outgoings from net income
  • Regularly review your cash flow forecast and update it 
  • Be proactive in balancing periods of negative cash flow with positive cash flow periods


Using the steps above to forecast your cash flow will give you the knowledge you need to make key business decisions regarding the day to day operations and long term growth of the business, as well as allowing you to take proactive steps to build buffers and manage cash flow during periods where you know the incoming cash will be reduced whilst still being able to cover your outgoing obligations. 




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