Plenty of profitable businesses get into trouble not because they aren't making money, but because the money arrives later than the bills. A cash flow forecast shows what your bank balance is likely to be in the weeks ahead, so you can spot a shortfall while there's still time to act. It doesn't need to be complicated. Here's how to build one.
Profit vs cash flow
| Profit | Cash flow | |
|---|---|---|
| Measures | Income minus expenses for a period | Actual money in and out of the bank |
| Timing | When income is earned and costs incurred | When money is received and paid |
| Can look healthy while... | Customers haven't paid yet | You're making losses but collecting old debts |
| Answers | "Are we making money?" | "Can we pay our bills next month?" |
Our guide to cash vs accrual accounting explains the difference in more depth.
What goes into a forecast
Cash coming in
- Customer payments, based on when you expect to be paid, not when you invoice
- Recurring income such as retainers and subscriptions
- Other receipts: loans, grants, asset sales, tax refunds
Cash going out
- Salaries and wages
- Rent and utilities
- Supplier payments and stock
- Software and subscriptions
- Loan repayments
- Tax payments: VAT, PAYE, Corporation Tax or Self Assessment
- One-off costs: equipment, insurance renewals
A simple 13-week template
| Week 1 | Week 2 | Week 3 | … | Week 13 | |
|---|---|---|---|---|---|
| Opening balance | £12,000 | £14,500 | £9,800 | ||
| Customer receipts | £6,000 | £2,500 | £8,000 | ||
| Other income | £0 | £0 | £0 | ||
| Total in | £6,000 | £2,500 | £8,000 | ||
| Wages | £0 | £5,500 | £0 | ||
| Rent | £1,500 | £0 | £0 | ||
| Suppliers | £1,200 | £800 | £1,500 | ||
| Software and other | £800 | £400 | £300 | ||
| Tax | £0 | £0 | £4,000 | ||
| Total out | £3,500 | £6,700 | £5,800 | ||
| Closing balance | £14,500 | £10,300 | £12,000 |
Each week's closing balance becomes the next week's opening balance. The figures above are illustrative.
Step by step
- Start with today's bank balance.
- List expected receipts by the week you realistically expect payment, using past payment behaviour.
- List expected payments by their due dates, including tax and irregular costs.
- Calculate the closing balance for each week.
- Highlight weeks where the balance drops below a safe minimum.
- Update weekly, replacing estimates with actual figures and rolling forward one week.
Be realistic with income
- Base timing on when customers actually pay, not your payment terms
- Separate confirmed income from hoped-for sales
- Consider a cautious and an optimistic version
Our guide to accounts receivable aging helps you understand how quickly customers pay.
If you spot a shortfall
| Action | Effect |
|---|---|
| Chase overdue invoices | Brings cash in sooner |
| Invoice promptly and offer easy online payment | Shortens payment times |
| Ask for deposits or staged payments | Cash arrives before costs |
| Agree longer terms with suppliers | Delays cash going out |
| Delay non-essential spending | Protects the balance |
| Arrange an overdraft or facility before you need it | Provides a buffer |
| Plan for tax payments | Avoids surprise bills |
Acting weeks ahead gives you far more options than discovering a problem the day before payroll.
Common forecasting mistakes
- Assuming customers pay on time
- Forgetting quarterly or annual costs like VAT, insurance and renewals
- Mixing up profit and cash
- Building a forecast once and never updating it
- Being too optimistic about new sales
Example: spotting a shortfall in week 7
A small agency's forecast shows a healthy balance for six weeks, then a dip below its safe minimum in week 7, when quarterly VAT and a large software renewal fall due while two client payments aren't expected until week 9.
| Option | Effect on week 7 |
|---|---|
| Invoice the next project milestone a week earlier | Brings forward expected cash |
| Ask one client to pay on agreed terms rather than late | Reduces the gap |
| Move the annual software renewal to monthly billing | Spreads the cost |
| Set aside cash from weeks 3–5 for the VAT payment | Smooths the dip |
| Arrange a small overdraft facility as a buffer | Safety net if plans slip |
Because the problem appeared six weeks ahead, the agency had several calm options instead of a scramble.
13-week vs 12-month forecasts
| 13-week forecast | 12-month forecast | |
|---|---|---|
| Detail | Week by week | Month by month |
| Purpose | Day-to-day cash decisions | Planning, hiring, investment |
| Accuracy | Higher, based on known invoices and bills | Lower, based on assumptions |
| Update frequency | Weekly | Monthly or quarterly |
Most small businesses benefit from both: the short-term forecast to stay safe, and the longer view to plan growth.
Use your bookkeeping data
Accurate books make forecasting much easier: you can see what's owed to you, what you owe and how quickly customers pay. Zelvorm Books, our free double-entry bookkeeping software, tracks invoices, bills and payments so the figures you need are always up to date. For the wider picture, read our guide to the balance sheet.
The short version
Start with today's bank balance, add realistic receipts and all expected payments week by week, calculate closing balances, highlight weeks that fall below a safe level and update the forecast every week. Spotting a shortfall early gives you time to chase payments, adjust spending or arrange finance.
