As a business owner, cash flow forecasting is essential for predicting your company's financial future.
As your business grows and financial complexity increases, this becomes an essential tool for maintaining control and making confident decisions.
This guide covers:
A cash flow forecast estimates the money coming into and going out of your business over a future period, helping you anticipate shortfalls and plan with confidence.
It reveals the ebb and flow of money in and out of your business, providing a clear picture of its financial health now and in the future. It's a dynamic tool, not a one-off exercise, that should be continually updated with actual figures to maintain an accurate view of your cash position and to practise effective cash flow management.
Cash flow forecasting is indispensable for maintaining a healthy financial position and improving your cash flow as a growing business.
As your business expands, forecasting becomes less about tracking cash and more about managing complexity and reducing risk.
For growing businesses, forecasting shifts from a helpful tool to a core part of financial control.
A cash flow forecast allows you to:
Simply put, cash flow forecasting offers numerous benefits that are vital for the success of your business. It's a proactive step towards improving your financial well-being and securing a prosperous future.
To get you started, here's a simple template you can follow:
Choose a timeframe for your forecast, typically starting with 12 months, to account for seasonal variations and annual trends.
Detail all sources of incoming cash, including sales receipts, investment interest, loan funding, etc. Use your sales forecast to estimate revenue and consider credit terms that may affect the timing of payments.
Review past bank statements to identify recurring expenses like supplier payments, wages, rent, utilities, and loan repayments. Factor in payment terms with suppliers to accurately predict outgoing cash flows.
If your business is VAT registered, incorporate VAT into your income and expense figures. Estimate VAT payments or refunds to HMRC for the relevant quarter.
Regularly adjust your forecast based on actual cash flows. This ongoing process refines your predictions and ensures accuracy over time.
A popular approach is the rolling 13-week cash flow forecast. This method offers a balance between accuracy and forward-looking visibility.
Below is a simplified example of a rolling cash flow forecast used by many growing businesses to maintain short-term visibility.
| Period | Week 1 | Week 2 | Week 3 | Week 4 | ... | Week 13 |
| Cash Inflows: | ||||||
| Sales (Cash) | £5,000 | £8,500 | £6,200 | £7,800 | £9,000 | |
| Sales (Credit) | £12,000 | £15,000 | £10,800 | £13,200 | £14,400 | |
| Loan Drawdown | - | - | - | - | - | |
| Other Income | £500 | £300 | £450 | £250 | £600 | |
| Total Cash In | £17,500 | £23,800 | £17,450 | £21,250 | £24,000 | |
| Cash Outflows: | ||||||
| Raw Materials | £3,500 | £4,200 | £3,800 | £4,500 | £4,800 | |
| Wages | £6,000 | £6,000 | £6,000 | £6,000 | £6,000 | |
| Rent & Utilities | £1,200 | £1,200 | £1,200 | £1,200 | £1,200 | |
| Marketing | £800 | £1,000 | £900 | £850 | £950 | |
| Loan Repayment | £1,000 | £1,000 | £1,000 | £1,000 | £1,000 | |
| VAT Payment | - | - | - | £4,800 | - | |
| Total Cash Out | £12,500 | £13,400 | £12,900 | £18,350 | £13,950 | |
| Net Cash Flow | £5,000 | £10,400 | £4,550 | £2,900 | £10,050 | |
| Opening Balance | £10,000 | £15,000 | £25,400 | £29,950 | (calculated) | |
| Closing Balance | £15,000 | £25,400 | £29,950 | £32,850 | (calculated) |
Before finalising your cash flow forecast, there are a few things to keep in mind:
To help businesses anticipate cash shortages and make informed financial decisions.
Typically weekly or monthly, depending on the size and complexity of the business.
A short-term forecasting method that provides detailed weekly visibility over a rolling 13-week period.
Effective cash flow management is crucial for business success, especially for SMEs. By actively monitoring and forecasting your cash flow, you can make informed decisions, mitigate risks, and ensure your company's long-term sustainability.
For many business owners, forecasting is the first step. The real value comes from using that insight to make better decisions across the business.
If you're running a growing business and want to strengthen your cash flow management, TAB's peer advisory boards provide practical, impartial support to help you plan with confidence.