How to Forecast Cash Flow

What is cash flow forecasting?

Cash flow forecasting means estimating the money that will come into and go out of your business over the weeks or months ahead. The result is a running view of your expected bank balance, week by week.

It answers a simple question your profit and loss can't: will I have enough cash to pay everyone on time? Plenty of profitable businesses get into trouble because customers pay late, stock ties up money, or a tax bill lands in the same week as payroll.

Why a 13-week forecast?

Thirteen weeks is one quarter. It's far enough ahead to see a cash squeeze coming and near enough that your figures are reliable. It's also the horizon banks, lenders and turnaround advisors usually ask for. Many businesses pair it with a 12-month projection for bigger planning decisions.

How to forecast cash flow in 6 steps

1. 1

   Start with your real bank balance

   Use your actual closing cash balance today, across all business bank accounts. Every forecast starts from a known number, not an estimate.

2. 2

   List the cash you expect to receive

   Customer payments based on when invoices are really paid (not when they are issued), plus loans, grants, tax refunds or asset sales. If customers usually pay in 45 days, forecast 45 days.

3. 3

   List the cash you expect to pay out

   Wages and super, rent, suppliers, loan repayments, GST or VAT, income tax instalments, subscriptions and any one-off purchases. Put each in the week it will actually leave the bank.

4. 4

   Work out the closing balance for each week

   Opening balance plus cash in, minus cash out, gives the closing balance. That becomes next week's opening balance. Repeat for 13 weeks.

5. 5

   Find the low point

   Look for the week with the lowest balance. That is your pressure point. If it dips below your safety buffer or overdraft limit, you know how long you have to act.

6. 6

   Compare, rebase and roll forward weekly

   Each week, compare what you forecast with what happened, restart from the real bank balance, and add a new week. This is what keeps a forecast trustworthy.

A simple worked example

A business starts the week with $60,000 in the bank. It expects $42,000 from customers and will pay $38,500 in wages, rent and suppliers.

Repeat that for each of the next 13 weeks and the low point becomes obvious. You can see a full six-week example on our cash flow forecasting software page.

Direct vs indirect cash flow forecasting

The direct method lists actual expected receipts and payments, as in the steps above. It's the best fit for short-term, week-by-week forecasts.

The indirect method starts from forecast profit and adjusts for non-cash items and changes in debtors, creditors and stock. It suits longer, monthly or yearly projections tied to a budget.

Common cash flow forecasting mistakes

• Forecasting from invoice dates instead of the dates customers really pay.
• Forgetting lumpy payments such as quarterly tax, annual insurance or loan balloon payments.
• Treating profit as cash, and missing stock, debt repayments and asset purchases.
• Building the forecast once and never updating it.
• Being too optimistic about new sales landing on time.

Skip the spreadsheet

Advisorli builds your 13-week cash flow forecast straight from Xero, QuickBooks, MYOB, Sage or Reckon, and keeps it current every week.

• Starts from your real bank balance
• Shows your projected low point and runway
• Compares forecast with actual each week