A cashflow forecast is one of those essential documents that you need for your business, alongside the likes of a profit and loss forecast.
Perhaps you’re a newer business trying to secure funding or a business grant and have been told you need to submit a cashflow forecast. Even if you’re not, it’s never too late to create one.
In theory, a cashflow forecast is simple to construct, but it could take a fair whack of time to put together, especially if you’re a new business trying to predict what the next period will look like, finance-wise.
We’re here to tell you everything you need to know about creating a cashflow forecast, complete with a handy template to get you to where you need to be.
Read on for the whole guide or go straight to the relevant section:
- What is a cashflow forecast?
- Why do I need a cashflow forecast?
- What needs to be included in a cashflow forecast?
- How do I create a cashflow forecast?
- Tips for your forecast
What is a cashflow forecast?
It is as it sounds – a prediction of your future income and outgoings over a certain period of time – usually 12 months, but it can be as short as a few weeks.
“Break your cashflow down monthly (at a minimum) and plot both expected payments and receipts,” David Smith, principal product manager for Kaleidoscope.com, told Small Business. “This granular view helps you identify potential cash shortfalls well in advance, so you can prepare rather than react. This monthly cashflow should act as your baseline or ‘business-as-usual’ forecast, and should be reviewed and updated regularly to reflect new realities.”
As we’ve touched on, these forecasts are especially good for new businesses, fast-growing businesses and seasonal businesses.
Why do I need a cashflow forecast?
A cashflow forecast is handy for crucial crunch times such as hiring new staff or reducing headcount, opening a new branch or changing the company structure. If you’re looking to borrow or to get a grant, the provider will often ask for a cashflow forecast, but it’s worth having one to guide your business decision-making in any case.
It can also help you to prepare for the scarier ‘what if’ scenarios, such as negative cashflow. Negative cashflow could leave you in quite the pinch, where you might not be able to pay suppliers and go on to face a decline in contracts. Not being able to keep up with your financial commitments affects your credit score and in turn could compromise your ability to take out finance in future. Ill-prepared, something like negative cashflow could damage your reputation, your business relationships and your ability to attract investors.
Having said all of this, a poorer credit score is not always so end-of-the-world-ish – it can just be a bad patch in the business. Fortunately, a cashflow forecast can help you figure out how to overcome it.
A cashflow forecast also helps you to uncover repeated gaps in your cashflow, such as consistently late payers or frequently overstocked items. It’s always helpful to see these things when you zoom out.
Above all, you get peace of mind as you’ll have a decent idea of what your finances are doing.
What needs to be included in a cashflow forecast?
A few core elements should be included.
Cash in and total cash in: Money coming in and a total of all of the money coming into your business. This will only count in the ‘cash in’ section once the money is actually in your account.
Cash out and total cash out: All of the money that leaves your business. Outgoings will include payments to suppliers, wages and bills such as your commercial rent and your day-to-day costs such as stationery, coffee and tea. You might come across the term ‘sales income’ and ‘non-sales income’. Non-sales income might include tax refunds, grants, royalties or subscription fees. You might also want to factor in the depreciation of assets and the business use of your home. Not to worry, though – you don’t have to include these terms in your forecast.
Net cashflow: The difference between cash inflows and outflows – essentially cash inflows minus cash outflows. This will give you your running cashflow.
Opening balance: Balance at the beginning of the reporting period.
Closing balance: Balance at the end of the reporting period.
Remember that your cashflow forecast is an ongoing living document so it will evolve with the business and external market forces.
How do I create a cashflow forecast?
Some business owners build them in Microsoft Excel so that when you fill out your income or outgoings, it’ll auto-populate the net cash in – cash out field.
We have a cashflow forecast template that you can access by downloading the document below.
It’s an Excel file that you can edit to fit your business. We’ve popped in some suggestions of your what your income and outgoing costs might look like, though you can add and remove these depending on what type of business you run. Given the original publication date of this article, we’ve gone from the 12 months from April 2025 to April 2026, in line with the UK tax year. You can set the period based on what’s appropriate for you.
If you’re a new business, your forecasting will recruit some hefty guesswork. Expect that the further out you plan, the less accurate your predictions will be. As your cashflow forecast is that living document that we mentioned, you’ll likely be tweaking it a lot, anyway.
Tips for your forecast
Your first step is to address your subscription costs. It’s worth looking over your existing subscriptions before creating your forecast – not only for accuracy, but to weed out any ‘zombie subscriptions’ that are no longer serving you.
Think about how the seasons affect your business and cashflow. If you run an ice cream parlour, you’re naturally going to have more income in the summer, with sales quietening down in the winter. This will act as a guide as to where you could stash some money away for savings and when to stump up the cash for longer term gains.
“Running a business means making daily decisions, many of which impact your cashflow more than your profit and loss statement might show,” Smith said. “Should you stock up before a busy season? Say yes to a large retail order? Invest in equipment? These decisions may be profitable in the long term, but they often require upfront spending that your current cash reserves might not support.”
Accounting software will help you see how your cashflow is doing. This applies to other online tools and software, too: “Modern businesses operate with multiple payment channels, such as corporate credit cards, virtual cards, reimbursements, bank transfers, and third-party payment platforms,” Steve Paul, deputy CFO at Equals Money, told Small Business. “Managing these methods without a unified system can create reconciliation headaches, lost invoices, and fragmented financial data that is difficult to consolidate. Businesses require centralised payment solutions that streamline all transactions into a single, accessible platform.”
Then there are considerations for firms doing overseas payments: “For businesses managing international payments, multi-currency accounts provide a seamless way to hold, exchange, and transact in different currencies without excessive conversion fees. These accounts improve cashflow management by reducing reliance on multiple banking relationships and avoiding unnecessary foreign exchange costs,” said Paul.
As with anything in life, complacency could catch you out, as Smith explains: “Many small businesses fall into the trap of thinking that if their annual cashflow forecast looks healthy, they’re in the clear. But in reality, timing can make or break your cash position,” he said. “You often need to spend cash long before you make it back, especially when purchasing stock or investing in materials. Long lead times can mean paying for goods months in advance, and if you sell B2B, you might not receive payment for 30, 60, even 90 days after a sale.” He said that this creates a dangerous gap between cash going out and cash coming in.
Smith also advises you to always consider the cashflow timing of each decision. “Will the cash come in fast enough to cover the outlay? Do you need a short-term loan, or could inventory financing bridge the gap? Add these scenarios to your baseline forecast to understand their full impact.”
Finally, remember that cash is king. “Profit doesn’t pay the bills, cash does,” Smith said. “Even a great decision on paper can create cash pressure in the short term. That’s why it’s worth modelling the real cashflow impact before you commit. When in doubt, consult with your accountant or financial adviser to make sure nothing is missed.”
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