How to build a cash flow forecast for a small business

A cash flow forecast shows how much money you expect to move in and out of the business over the coming weeks and months, and when. It is different from a profit forecast: a business can be profitable and still run short of cash. This guide explains what to include and how to keep it useful.

Profit counts income and costs when they are earned or incurred. Cash flow counts money when it actually arrives or leaves. Customers pay late, VAT and corporation tax fall due in lumps, and stock or payroll has to be paid before sales are collected. A forecast makes those timing gaps visible before they become a problem.

- **Opening cash balance** across all bank accounts - **Money in:** customer payments timed by when they actually pay, not when you invoice, plus any grants, loans or investment - **Money out:** supplier payments, payroll and pensions, rent, software, loan repayments and drawings or dividends - **Tax payments:** VAT, PAYE and corporation tax, on the dates they are due - **One-off items:** equipment, deposits, annual subscriptions and planned hiring - **Closing cash balance** for each period, which becomes the opening balance for the next

1. **Start from your bank and your ledger.** Use real figures for the last few months to see how customers and suppliers behave. 2. **Choose the period.** Weekly works well for the next 13 weeks, with a monthly view for the year ahead. 3. **Forecast receipts from your actual payment pattern.** If customers usually pay in 45 days, forecast 45 days. 4. **Add the fixed and the lumpy costs.** Put tax and annual bills in the month they are paid. 5. **Find the low point.** The lowest closing balance tells you how much headroom you have and when. 6. **Add scenarios.** Test a late-paying customer, a lost contract or a new hire.

A forecast is only useful if it is updated. Compare it with what actually happened each month, correct the assumptions that were wrong, and roll it forward. That comparison is a standard part of good [management accounts](/management-accounts-explained).

- Forecasting when you invoice rather than when you are paid - Leaving out VAT, PAYE or corporation tax dates - Forgetting annual costs and one-off purchases - Building it once and never updating it - Using a single scenario with no downside case

We build and maintain rolling cash flow forecasts as part of our [fractional finance director](/fractional-finance-director) and [outsourced finance function](/finance-function) services, and prepare the forecasts that lenders and investors ask for. See also our guide to [what a finance function is](/what-is-a-finance-function).