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Cash flow forecasts: How to do it and why they’re important

Ollie Maitland Jul 09, 2024

Cash flow forecasts are essential tools for business owners, providing a clear picture of your cash inflows, outflows, and future financial position. This article will help you understand how to create effective cash flow forecasts and explain why they're so important for your business.


What is a cash flow forecast?

A cash flow forecast estimates your business's incoming and outgoing cash over a specific period. These forecasts help you predict your future financial position, enabling you to make informed decisions about spending, investing, and saving.

Cash flow forecasting focuses on the short term, usually a maximum of 12 months. Its purpose is to ensure you have enough cash to meet immediate obligations like payroll and supplier payments. This differs from annual budgeting and a budget forecast which involve long term financial planning and setting financial goals for the year. An annual budget will outline expected revenues and expenses. Whereas cash flow forecasts provide a detailed, time-specific view of your cash movements, helping you manage daily operations effectively and avoid liquidity issues. 

Why are cash flow forecasts important?

Forecasting your cash flow keeps you in control and up to date with your business finances. Here’s why that’s so important:

Avoiding cash shortages
Cash flow forecasts help you identify potential cash shortages before they happen. By anticipating when money might be tight, you can take proactive steps to avoid financial strain.

Planning for growth
Accurate forecasts enable you to plan for business growth. You can determine if you have enough cash to invest in new opportunities or if you need to seek additional funding, such as a business loan

Managing expenses
By tracking expected income and outgoings you can manage your business expenses more effectively. This helps you stay within budget and avoid unnecessary spending.


How to create a cash flow forecast

Creating cash flow forecasts involves a few simple steps. Here’s a step-by-step guide to get you started:

1. List your income sources

Start by listing all expected sources of income. This could include sales revenue, interest earnings, and other business activities. For example, if you run a retail shop, your income sources might be in-store sales, online sales, and interest from a business savings account.


2. Estimate your expenses

Next, list all expected expenses. This includes fixed costs like rent and salaries, as well as variable costs like utilities and inventory. For example, a restaurant owner might include costs for ingredients, wages for staff, and utility bills.


3. Calculate net cash flow
Subtract your total expenses from your total income to calculate your net cash flow. If your income exceeds expenses, you have a positive cash flow. If expenses exceed income, you have a negative cash flow.


4. Plan for seasonal variations
Consider any seasonal variations in your business. For instance, a gardening business might see higher income in spring and summer but lower income in winter. Make sure to adjust your forecasts accordingly.


5. Create the forecast
Using a spreadsheet, list your estimated inflows and outflows for each month. Here’s a simplified example:




Net cash flow(£)













In this example, you can see that March has a negative cash flow, indicating a potential shortage. Knowing this in advance allows you to take steps to address it, such as securing a short term business loan, or cutting unnecessary expenses. 


6. Review and adjust regularly
Cash flow forecasts should be reviewed and adjusted regularly. As your business grows and market conditions change, your forecasts will need updating to remain accurate.

Tips for accurate cash flow forecasts

Follow these steps to ensure your cash flow forecast is as accurate and useful as possible:

  • Be realistic

Use conservative estimates to avoid overestimating inflows or underestimating outflows.

  • Regular updates

Update your forecasts regularly to reflect the latest financial data and market conditions.

  • Seek professional advice

If you're unsure about your forecasts, consult with an accountant or financial advisor.

Use our free cash flow forecast template

To simplify the process, you can use our free cash flow forecast template. Available in Google Sheets format, you can easily download the template and start inputting your figures.


Accessing business finance to boost your cash flow

If your forecast shows a cash flow shortfall, you might need a quick cash injection to keep things running smoothly. Having access to short term finance can give you the flexibility to enhance cash flow when it's needed.

At Capitalise, we work with over 100 business lenders to help find the right financing option for your business. Simply search for funding, and we'll connect you with the best options tailored to your business needs.

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