business plan cash flow forecast template

How to Create a Cash Flow Forecast

10 min. read

Updated May 3, 2024

A good cash flow forecast might be the most important single piece of a business plan . All the strategy, tactics, and ongoing business activities mean nothing if there isn’t enough money to pay the bills.

That’s what a cash flow forecast is about—predicting your money needs in advance.

By cash, we mean money you can spend. Cash includes your checking account, savings, and liquid securities like money market funds. It is not just coins and bills.

Profits aren’t the same as cash

Profitable companies can run out of cash if they don’t know their numbers and manage their cash as well as their profits.

For example, your business can spend money that does not show up as an expense on your  profit and loss statement . Normal expenses reduce your profitability. But, certain spending, such as spending on inventory, debt repayment, and purchasing assets (new equipment, for example) reduces your cash but does not reduce your profitability. Because of this, your business can spend money and still be profitable.

On the sales side of things, your business can make a sale to a customer and send out an invoice, but not get paid right away. That sale adds to the revenue in your profit and loss statement but doesn’t show up in your bank account until the customer pays you.

That’s why a cash flow forecast is so important. It helps you predict how much money you’ll have in the bank at the end of every month, regardless of how profitable your business is.

Learn more about the differences between cash and profits .

• Two ways to create a cash flow forecast

There are several legitimate ways to do a cash flow forecast. The first method is called the “Direct Method” and the second is called the “Indirect Method.” Both methods are accurate and valid – you can choose the method that works best for you and is easiest for you to understand.

Unfortunately, experts can be annoying. Sometimes it seems like as soon as you use one method, somebody who is supposed to know business financials tells you you’ve done it wrong. Often that means that the expert doesn’t know enough to realize there is more than one way to do it.

• The direct method for forecasting cash flow

The direct method for forecasting cash flow is less popular than the indirect method but it can be much easier to use.

The reason it’s less popular is that it can’t be easily created using standard reports from your business’s accounting software. But, if you’re creating a forecast – looking forward into the future – you aren’t relying on reports from your accounting system so it may be a better choice for you.

That downside of choosing the direct method is that some bankers, accountants, and investors may prefer to see the indirect method of a cash flow forecast. Don’t worry, though, the direct method is just as accurate. After we explain the direct method, we’ll explain the indirect method as well.

The direct method of forecasting cash flow relies on this simple overall formula:

Cash Flow = Cash Received – Cash Spent

And here’s what that cash flow forecast actually looks like:

Let’s start by estimating your cash received and then we’ll move on to the other sections of the cash flow forecast.

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Forecasting cash received

You receive cash from three primary sources: 

1. Sales of your products and services

In your cash flow forecast, this is the “Cash from Operations” section. When you sell your products and services, some customers will pay you immediately in cash – that’s the “cash sales” row in your spreadsheet. You get that money right away and can deposit it in your bank account. You might also send invoices to customers and then have to collect payment. When you do that, you keep track of the money you are owed in  Accounts Receivable . When customers pay those invoices, that cash shows up on your cash flow forecast in the “Cash from Accounts Receivable” row. The easiest way to think about forecasting this row is to think about what invoices will be paid by your customers and when.

2. New loans and investments in your business

You can also receive cash by getting a new loan from a bank or an investment. When you receive this kind of cash, you’ll track it in the rows for loans and investments. It’s worth keeping these two different types of cash in-flows separate from each other, mostly because loans need to be repaid while investments do not need to be repaid.

3. Sales of assets

Assets are things that your business owns, such as vehicles, equipment, or property. When you sell an asset, you’ll usually receive cash from that sale and you track that cash in the “Sales of Assets” section of your cash flow forecast. For example, if you sell a truck that your company no longer needs, the proceeds from that sale would show up in your cash flow statement.

Forecasting cash spent

Similar to how you forecast the cash that you plan on receiving, you’ll forecast the cash that you plan on spending in a few categories:

1. Cash spending and paying your bills

You’ll want to forecast two types of cash spending related to your business’s operations: Cash Spending and Payment of Accounts Payable. Cash spending is money that you spend when you use petty cash or pay a bill immediately. But, there are also bills that you get and then pay later. You track these bills in  Accounts Payable . When you pay bills that you’ve been tracking in accounts payable, that cash payment will show up in your cash flow forecast as “payment of accounts payable”. When you’re forecasting this row, think about what bills you’ll pay and when you’ll pay them. In this section of your cash flow forecast, you exclude a few things: loan payments, asset purchases, dividends, and sales taxes. These will show up in the following sections.

2. Loan Payments

When you make loan repayments, you’ll forecast the repayment of the principal in your cash flow forecast. The interest on the loan is tracked in the “non-operating expense” that we’ll discuss below.

3. Purchasing Assets

Similar to how you track sales of assets, you’ll forecast asset purchases in your cash flow forecast. Asset purchases are purchases of long-lasting, tangible things. Typically, vehicles, equipment, buildings, and other things that you could potentially re-sell in the future. Inventory is an asset that your business might purchase if you keep inventory on hand.

4. Other non-operating expenses and sales tax

Your business may have other expenses that are considered “non-operating” expenses. These are expenses that are not associated with running your business, such as investments that your business may make and interest that you pay on loans. In addition, you’ll forecast when you make tax payments and include those cash outflows in this section. 

Forecasting cash flow and cash balance

In the direct cash flow forecasting method, calculating cash flow is simple. Just subtract the amount of cash you plan on spending in a month from the amount of cash you plan on receiving. This will be your “net cash flow”. If the number is positive, you receive more cash than you spend. If the number is negative, you will be spending more cash than you receive. You can predict your cash balance by adding your net cash flow to your cash balance.

• The indirect method

The indirect method of cash flow forecasting is as valid as the direct and reaches the same results.

Where the direct method looks at sources and uses of cash, the indirect method starts with net income and adds back items like depreciation that affect your profitability but don’t affect the cash balance.

The indirect method is more popular for creating cash flow statements about the past because you can easily get the data for the report from your accounting system.

You create the indirect cash flow statement by getting your Net Income (your profits) and then adding back in things that impact profit, but not cash. You also remove things like sales that have been booked, but not paid for yet.

Here’s what an indirect cash flow statement looks like:

There are five primary categories of adjustments that you’ll make to your profit number to figure out your actual cash flow:

1. Adjust for the change in accounts receivable

Not all of your sales arrive as cash immediately. In the indirect cash flow forecast, you need to adjust your net profit to account for the fact that some of your sales didn’t end up as cash in the bank but instead increased your accounts receivable.

2. Adjust for the change in accounts payable

Very similar to how you make an adjustment for accounts receivable, you’ll need to account for expenses that you may have booked on your income statement but not actually paid yet. You’ll need to add these expenses back because you still have that cash on hand and haven’t paid the bills yet.

3. Taxes & Depreciation

On your income statement, taxes and depreciation work to reduce your profitability. On the cash flow statement, you’ll need to add back in depreciation because that number doesn’t actually impact your cash. Taxes may have been calculated as an expense, but you may still have that money in your bank account. If that’s the case, you’ll need to add that back in as well to get an accurate forecast of your cash flow.

4. Loans and Investments

Similar to the direct method of cash flow, you’ll want to add in any additional cash you’ve received in the form of loans and investments. Make sure to also subtract any loan payments in this row.

5. Assets Purchased and Sold

If you bought or sold assets, you’ll need to add that into your cash flow calculations. This is, again, similar to the direct method of forecasting cash flow.

• Cash flow is about management

Remember: You should be able to project cash flow using competently educated guesses based on an understanding of the flow in your business of sales, sales on credit, receivables, inventory, and payables.

These are useful projections. But, real management is minding the projections every month with plan versus actual analysis so you can catch changes in time to manage them. 

A good cash flow forecast will show you exactly when cash might run low in the future so you can prepare. It’s always better to plan ahead so you can set up a line of credit or secure additional investment so your business can survive periods of negative cash flow.

• Cash Flow Forecasting Tools

Forecasting cash flow is unfortunately not a simple task to accomplish on your own. You can do it with spreadsheets, but the process can be complicated and it’s easy to make mistakes. 

Fortunately, there are affordable options that can make the process much easier – no spreadsheets or in-depth accounting knowledge required.

If you’re interested in checking out a cash flow forecasting tool, take a look at LivePlan for cash flow forecasting. It’s affordable and makes cash flow forecasting simple.

One of the key views in LivePlan is the cash flow assumptions view, as shown below, which highlights key cash flow assumptions in an interactive view that you can use to test the results of key assumptions:

With simple tools like this, you can explore different scenarios quickly to see how they will impact your future cash.

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

Table of Contents

• Profits aren’t the same as cash

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Cash Flow Forecasting: A How-To Guide (With Templates)

Janet Berry-Johnson, CPA

Reviewed by

May 30, 2023

This article is Tax Professional approved

Most small business owners just want their accounting done so they can focus on doing what they love. But tracking and forecasting cash flow—despite the time and effort required—is essential for starting, operating, and expanding a business.

I am the text that will be copied.

In 2018, CB Insights analyzed 101 failed startups and found that running out of cash was the second most common cause of failure, impacting 29% of businesses.

To avoid that fate, you need a cash flow forecast to help you estimate how much your cash outflows and inflows will affect your business.

What is a cash flow forecast?

A cash flow forecast (also known as a cash flow projection) is like a budget, but rather than estimating revenues and expenses, it estimates cash coming in and going out based on past business performance.

It’s not uncommon for a business to experience a cash shortage, even when sales are good. This usually happens when customers are allowed to pay after the product or service is delivered. In cases like these, a business owner must plan how they will cover costs before receiving the payment.

For example, say Hana Enterprises ships $50,000 worth of security products to customers in January, along with invoices that are due in 30 days. The company will have $50,000 of revenues for the month but won’t receive any cash until February. On paper, the business looks healthy, but all of its sales are tied up in the accounts receivable. Unless Hana Enterprises has plenty of cash on hand at the beginning of the month, they will have trouble covering their expenditures until they start receiving cash from clients.

With a cash flow forecast, you ignore sales on credit, accounts payable, and accrued expenses, instead focusing on the revenue you actually expect to collect and the expenses you actually expect to pay during a given period. You can also use the information provided on past cash flow statements to estimate your expenses for the period you’re forecasting for.

( If you just want to dive into cash flow forecasting, check out our free cash flow forecast template . )

The benefits of cash forecasting

Cash forecasting may sound like something boring that accountants do in big companies. Not so! It’s absolutely essential for every single business. Here’s why:

• It helps you identify potential problems. Cash forecasting can help you predict the months in which you’re likely to experience a cash deficit and make necessary changes, like changing your pricing or adjusting your business plan.
• It decreases the impact of cash shortages. When you can predict months in which you might experience a cash shortage, you can take steps to plan for them. You might save more in months where you have a surplus, step up your receivables collection efforts, or establish a line of credit with your bank to guarantee enough working capital to last the period.
• It keeps suppliers and employees happy. Late payments and missing paychecks damage your reputation with suppliers and employees. When you can predict how much money you’ll have on hand in any given month, you can confirm that you’ll be able to meet your payroll obligations and pay suppliers by the due date.

Free cash flow forecast template

To make this a lot easier, we’ve created a business cash flow forecast template for Excel that you can start using right now.

Access Template

The template has three essential pieces:

• Beginning cash balance. This is the actual cash you expect to have on hand at the beginning of the month. It should include bank accounts, PayPal, Venmo, anything you use that’s currently holding just business funds. This information can be found on your balance sheet .
• Sources of cash. These are all of your cash inflows each month. It can include cash sales, receivables collections, repayments from money you’ve loaned out, etc.
• Uses of cash. This is every expense your business may incur, including payroll, payments to vendors, utilities, rent, loan payments, etc.

Here’s an example of a completed cash flow projection for a three month period:

Hana Enterprises, Inc.

Cash Flow Projection

January to March 2022

As you can see from the example above, Hana Enterprises expects to have a cash shortage in March. This results from a negative net cash flow (when more cash goes out than comes in). Knowing that information ahead of time, the company can take steps to prevent the shortage from occurring.

Hana Enterprises has several options to avoid this shortage in March. They might secure a line of credit from the bank, purchase fewer computers in February, negotiate longer payment terms from vendors, contact late-paying customers to speed up the collection of receivables, or take other cost-cutting measures to reduce their overhead expenses.

When you’re ready to get started, download your copy of the cash flow forecasting sheet here .

How Bench can help

Use Bench’s simple, intuitive platform to get all the information you need to project your cash flow. Each month, your transactions are automatically imported into our platform then categorized and reviewed by your bookkeeper. Bench helps you stay on top of your business’s top expenses so you can make informed budgeting decisions on the fly. Explore our platform with a free demo .

Tips for improving your cash flow spreadsheet

Keep in mind: a cash flow forecast isn’t something you create once a year and never look at again. It’s a living, breathing business tool you should review and update on a monthly basis.

Though projections are helpful, they can’t perfectly predict the future. As the months pass, you should expect to see that your projections aren’t quite matching up with your actual results. That means it’s time to re-run your forecast to take into account these differences.

To improve the accuracy of your cash flow worksheet, consider the following:

• Account for extra pay periods. If you pay employees bi-weekly, make sure your projection takes into account any months with three payrolls.
• Remember annual payments. If certain insurance policies, subscriptions, or other expenses are paid annually rather than monthly, be sure to include them in your spreadsheet.
• Remember estimated tax payments. For most calendar-year businesses, estimated tax payments are due on April 15th, June 15th, September 15th, and January 15th.
• Don’t forget about savings. Try to allocate a portion of any cash surpluses to save for lean months.
• Identify seasonal fluctuations. If you’re expecting a period of time with lower sales, make sure your forecast reflects this so you can have enough cash on hand to ramp up when business picks up again.
• Don’t forecast too far out. Creating a rolling 12-month cash flow forecast that you update at the end of each month can help you identify issues before your business faces financial troubles, but don’t try to forecast more than 12 months out. The longer the reporting period you want to forecast, the more likely you’ll end up spending a lot of time creating a cash flow projection that doesn’t provide any useful information.

Your cash flow forecast is key to good cash flow management . Try to account for all cash sources and uses in your projection and maintain an emergency fund or backup plan to ensure you don’t get sidelined by slow-paying customers or unexpected expenses. When you do, this simple but valuable tool can help you keep an eye on cash and ensure you don’t compromise growth or put your business in jeopardy.

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Cash Flow Forecast Template

Table of Contents

What is a Cash Flow Forecast?

A cash flow forecast estimates the future inflows and outflows of cash for a business. It can help a business plan for upcoming expenses and ensure enough money is available to meet its obligations.

The forecast is typically created annually, monthly, or quarterly, and it can be very helpful in managing cash flow. To create a cash flow forecast, businesses need to track their current inflows and outflows of cash and make assumptions about future sales and expenses. With this information, businesses can develop a realistic picture of their future cash needs and plan accordingly.

At Business Accounting Basics, we understand the importance of reviewing your cash and ensuring there is enough for business activities. Therefore, we have created a cash forecast template available for free download. We also include a complete example and instructions to help you get started.

Accounting Software for Cash Forecasting

Although using an Excel template might be suitable, it is worth considering accounting software as an alternative. Two popular options for accounting software are Xero and Quickbooks . These programs allow users to easily input and track real-time financial data, such as income and expenses. They also provide forecasting options, keeping your accounting all in one place and updating the forecast with actual figures.

How to use a Cash Flow Forecast Template

A cash flow forecast is an essential tool for any business. It can help you track incoming and outgoing funds, anticipate shortfalls, and make informed decisions about allocating your resources.

Several templates are available online, but the basics of forecasting are always the same.

First, gather all of your financial information for the month, including sales revenue, costs of goods sold, operating expenses, and any other income or expenses. Next, input this information into the template.

Most templates will have pre-set categories, but our template allows you to set the categories for your specific needs. Once all the information is entered, the template automatically generates a forecast for the month or year.

It will give you a clear picture of your cash flow situation and help you make informed decisions about allocating your resources.

Tips for creating a successful Cash Flow Forecast Template

1. review your current financial situation.

Before forecasting your cash flow, you must understand your current financial situation. This includes tracking your income and expenses for the past several months and knowing your business’ sales trends.

2. Use historical data to make assumptions about future cash flow

Once you understand your current financial situation, use this information to make assumptions about future cash flow. This will help to create a more accurate forecast.

3. Make sure all income and expenses are included in the forecast

To develop an accurate picture of your future cash flow, including all income and expenses in the forecast. This includes not only regular monthly expenses but also one-time or irregular expenses

4. Anticipate changes in revenue and expenses

Businesses can’t always predict when their revenue or expenses will change, so it’s important to anticipate these changes in the forecast. This will help you stay prepared for any fluctuations in cash flow.

5. Reconcile actual results with the forecast regularly

The best way to ensure that your cash flow forecast is accurate is by regularly reconciling actual results with the forecast. This will help you to identify any areas where the forecast is inaccurate and make adjustments accordingly

Following these tips, you can create a successful cash flow forecast template to help you manage your business’ finances effectively.

4. Benefits of using a Cash Flow Forecasting Template

A cash flow forecasting template can be valuable for any business owner. By creating a forecast, businesses can better understand their incoming and outgoing cash flow and make necessary adjustments to ensure they always have enough cash on hand to meet their obligations.

Forecasting can help businesses plan for significant expenses, such as equipment purchases or expansion projects. A cash flow forecast can also give business owners peace of mind by providing a clear view of their financial situation. With all these benefits, it’s no wonder that more and more businesses are using cash flow forecasting templates to help them stay on top of their finances.

Using a template already provided online will save time in setting one up yourself. The developer should have tested it to ensure that the additions are all correct. If you are new to Excel, setting up templates is a steep learning curve.

How often should you update your Cash Flow Forecast Template?

Many businesses use a cash flow forecast template to help them track and predict their short-term cash flow. Depending on your business’s size and complexity, you may need to update your template weekly, monthly, or quarterly.

Updating your template more frequently can help you better understand your current cash situation and make more informed decisions about spending and saving. However, more frequent updates may require more time and attention to detail.

Ultimately, the frequency with which you update your cash flow forecast template should be based on your specific needs and resources.

Where to get help with creating a Cash Flow Forecast Template

While there are many places to find templates online, including our free version. Ensuring that your chosen template is suitable for your business is essential. Talk to your accountant or bookkeeper about what information should be included in your template, and consider whether you need an accounting software program or an Excel spreadsheet.

An accountant might even have their own template available; if you don’t have the time, they can assist you in preparing a forecast. With some planning, you can find the right template to help you manage your cash flow and keep your business on track.

Where to get all the information to enter into a cash flow forecast

1. Start with your income. This should include all revenue from sales, services, interest, investments, and other sources. The figures are the net sales (no sales tax); if you expect any tax refund, include them.

2. Next, list all of your expenses. This should include fixed expenses, like rent or mortgage payments, and variable expenses, like utilities or inventory costs. Don’t forget to add dividend payments and tax payments.

3. Finally, identify any one-time or irregular expenses you expect to incur over the forecast period. This could include significant equipment purchases or expansion projects.

There are three primary resources to collect the figures from, including:

Income Statement

The income statement is the most vital information when forecasting cash flow. The income statement tells you how much revenue a company has generated over a period of time, as well as how much the cash paid out for business expenses is.

The information can help you predict how much cash a company will have available in the future. You can also use data from the income statement to predict how much money a company will spend in the future, which can help you create a more accurate cash flow forecast.

Balance Sheet

The balance sheet can be a valuable source of information for forecasting cash flow. By looking at the bank balance, creditors and debtors on the balance sheet, you can know how much cash the company has and will receive or spend in the future.

Bank Statement

The bank statement can be used to forecast regular payments, such as direct debits and standing orders. The statement shows the date of the payment, the amount, and the type of payment. This information can be used to create a schedule of regular payments that can be used to plan future expenses.

Once you have all this information, you can input it into your cash flow forecast template. Remember to update your template regularly to reflect your current financial situation accurately. With some planning and foresight, you can use your cash flow forecast template to keep your business on track.

Free Business Accounting Basics Cash Flow Forecasts Templates

We have created annual, weekly, and daily templates to help track your small business cash flow.

All the templates follow the same format, with cash receipts at the top and cash payments below. The bottom rows show the bank balance brought forward, the cash inflow and cash outflow and a balance carried forward.

Instructions for Cash Flow Forecast Use

To complete the Company’s cash flow forecast, follow these simple steps.

• Decide which template you require and use the free download at the end of this article.
• Either enter the start date for weekly or daily. On the monthly version, change the months.
• Enter the opening bank balance on the first balance b/f
• Create the best income and expenses categories and name them
• Enter the projected income, and make sure you include cash receipts
• Enter the cash outflows for both variable costs and fixed costs
• All the balances are automatically calculated and will show the projected cash flow, which is the opening balance plus all income, minus expenses, leaving a net cash flow.
• If you use the weekly or daily cash flow, change the balance b/f when you start a new week or day for the actual bank balance.

Licence Agreement for Business Cash Flow Forecast Template

By downloading the Cash Flow Forecast templates, you agree to our licence agreement , allowing you to use the templates for your own personal or business use only. You may not share, distribute, or resell the templates to anyone else in any way.

Annual Cash Flow Forecasts Template

Our first template is for cash flow projections for a year on a monthly basis. This is required for a business plan or by banks for loans and overdraft facilities.

Cash Flow Statement Template

Weekly cash flow forecasts template.

Our second template is for cash flow projections weekly, split by week for three months. This is suitable for small business owners that need to track cash on a regular basis to check their financial situation regularly. It is required if a small business is near its overdraft limit.

Cash Flow Weekly

Daily cash flow forecast.

Our final template is the daily cash flow forecast for 14 days. It is only needed by small businesses if they are very tight on cash, and the situation might change daily.

Forecast Example

Download our free example; it is a forecast for one year for a computer hardware business.

Cash Flow Example

Cash flow forecast faq, why do i need a cash forecast.

It will show different figures to a profit and loss account. A profit and loss might show a profit for one month, but due to delays in collecting cash, there might not be enough cash to cover the expenses. This information can help business owners plan future expenses and stay on track financially. It can also be used to obtain loans or overdraft facilities from a bank.

How do you Create a Cash Flow Statement?

The easiest way to create a statement is in Excel using a free template, but if you are experienced in Excel, you can easily create one yourself to fit your small business needs.

Can I make Changes to the Cash Flow Forecast Template?

We have left the templates unprotected so you can add rows and columns to extend it.

I’m a new business; how do I get the figures?

As a new business, it is harder to collect the figures but estimate them and note why you have come to the figures.

Are there alternatives to using Excel?

Some of the best accounting software includes cash forecasts. We recommend Xero , QuickBooks or Sage. By using accounting software, you already have the actual figures available, so it helps with the complete process.

Cash Flow Forecast Template Conclusion

Forecasting your small business cash flow can seem daunting, but it can be a relatively simple process with the right tools and information. We’ve provided a few helpful resources to get started, including free templates for annual, weekly, and daily cash flow forecasts.

With these templates, you can easily track your company’s income and expenses to have a realistic picture of your current financial situation. Stay ahead of the game by planning for future expenditures and keeping tabs on your regular payments using our helpful tips.

Angela Boxwell – Senior Writer at Business Accounting Basics

Angela Boxwell, MAAT, brings over 30 years of experience in accounting and finance. As the founder of Business Accounting Basics, she offers a wealth of free advice and practical tips to small business owners and entrepreneurs dealing with business finance complexities.

Angela has used and tested various accounting software packages; she is Xero-certified and a QuickBooks ProAdvisor. Experienced in using Excel spreadsheets for her bookkeeping needs and created a collection of user-friendly templates designed specifically for small businesses.

CASH FLOW FORECASTING TEMPLATE: FREE DOWNLOAD & STEP-BY-STEP GUIDE

In this guide, we’ll start with the basics of what cash flow and cash flow forecasting are, why they’re important for businesses, and how you can get a free template to start forecasting today. 

Already got the basics covered? Feel free to jump ahead using the linked headers below:

What is cash flow?

What is a cash flow forecast.

Creating cash flow forecasts

What is a cash flow forecasting template?

Why use forecast templates, how to create your own cash flow forecast template, free & simple cash flow forecast template, how to automate your monthly cash flow forecast, helm vs. spreadsheets for cash flow forecasts.

If you search cash flow on Wikipedia you’ll find a bunch of information on liquidity, profits, accounting standards, and more. All that is great, but it overcomplicates things.

In the most basic sense, cash flow is simply the amount of money that flows into and out of a business. 

Credit where it’s due, Investopedia probably has the most concise definition of cash flow we have seen. The writer, Adam Hayes, does a great job of summarizing it at a basic level:

“Cash flows are the net amount of cash and cash-equivalents being transferred into and out of a business. Cash received are inflows, and money spent are outflows.”

He furthers this by stating that:

“At a fundamental level, a company’s ability to create value for shareholders is determined by its ability to generate positive cash flows.”

No need to overcomplicate it. Cash flow is simply the amount of money that flows into and out of a business.

A cash flow forecast plans out a business’s cash flow (or inflows and outflows of cash/money) for a given period of time. Cash flow forecasts can be created for the short or long term.

The goal of any cash flow forecast is to give information on when you’ll have a surplus or a lull of cash, so you can make informed decisions for your business. Cash forecasting is especially important for small businesses, businesses with seasonal fluctuations, businesses with ‘lumpy’ payments, and any business where cash flow is inconsistent.

A short-term cash flow forecast can be defined as anything from a one-week forecast to 30 days, 90 days, or even a year into the future. Looking at the immediate future gives you more confidence to make decisions about your business.  

On the other hand, a medium or long-term cash flow forecast looks 2 to 5+ years out, and is typically measured in quarterly or yearly increments.

In this article, we’re gonna focus on how to build a 1-year forecast reporting cash balances on a monthly basis. A 1-year forecast helps you see any potential short-term gaps as well as make plans for the future.

Creating Cash Flow Forecasts

Creating a cash flow forecast can seem like a daunting task at first. But, by keeping your books in order and using a template you can simplify the process (apps can also help, but more on that later!). 

To create a cash flow forecast you’ll need to gather all the information on cash inflows and cash outflows of cash during a period (monthly in our case). You’ll also need your bank balance amount and any other sources of income, like a line of credit, to serve as your starting cash position. You’ll then take all this information and put it in a spreadsheet where you can calculate your cash flow each month. 

If you read the above and thought to yourself “that’s gonna take a while”, you’re not alone in your thoughts, so let’s see some ways we can speed things up.

First up – templates. 

Exactly what it sounds like. The theme of the day is don’t overcomplicate things where you don’t have to. A cash flow forecast template is a preset template in a spreadsheet that you can use time and time again. No sense in reinventing the wheel. After all, the goal of a cash flow forecast is to help you make better business decisions – not spend more time in spreadsheets. 

They save time, money, and prevent gray hairs (they simplify the process).

What more is there to say?

Creating a cash flow forecast is relatively simple, all you need is access to spreadsheet software like excel or google sheets. There are also lots of free templates online (including ours below) that you can use and quickly tailor to your own needs.

At the very minimum you’ll need columns for each time period you want to predict your cash balance, and rows underneath for inflows and outflows. It’s up to you how detailed you make the forecast, often this comes down to a tradeoff between time and accuracy when you’re forecasting manually like this. 

Your cash outflows include cash sources like wages, payments to suppliers, bills, advertising, loan payments, and other business expenses

Your cash inflows are likely made up primarily of sales, but could also include things like tax refunds, and money received from grants and from the sale of assets. 

Access a free cash flow spreadsheet template here .

Our template comes with all the formatting and formulas pre-done so all you have to do is enter your expenses and inflows. Using this cash flow projection template you can also view your monthly forecasts and cash balances graphically.

Even with a template, manually completed forecasts are time-consuming and prone to human error. This is an issue the Helm founders felt firsthand in their business and when talking to clients, and it’s why they built Helm in the first place. 

An app like Helm has the ability to automatically sync with your accounting software (Sage, Xero, QuickBooks Online) and generate a cash flow forecast without the need for you to manually source and enter data. 

Helm syncs with Sage , Xero , and QuickBooks Online and creates a forecast from your data in minutes. That means you save hours of tedious work and you know the data and the forecast is accurate and free from human error, or forgotten accounts. 

But Helm isn’t – just – about speed and accuracy. It also provides a whole suite of other benefits like the ability to:

Test unlimited scenarios side by side to see the impact of multiple different paths your business could take, letting you make the best decisions for your business quickly and confidently (Can you afford a new hire? New equipment? What will inflation add to our costs this year?)

Manage and plan accounts receivable and accounts payable.

Pay directly from Helm (greatly simplifying and speeding up your payment process)

Tailor future events to reflect reality. Set when and how frequently events reoccur and adjust growth rates for more accurate and faster planning, compared to adding events one at a time. (No more vague estimates!)

Drag and drop interface making adjustments and collaboration as simple as picking something up and moving it!

See the state of your business and ways you can improve your cash position at a glance with the Helm Health Score Dashboard.

Add unlimited users so collaboration is easy. 

Plus you get access to support backed by experience. Helm was designed by accountants and advisors who specialize in offering cash flow forecasts and outsourced controllership services for their clients. They designed Helm to help them work with their small business clients. There isn’t a cash flow question you can ask us we won’t know the answer to. 

Cash Flow Forecasting

Free Cash Flow Forecast Template

Harriet Stevenson

11th August 2017 11th October 2023

We understand how important cash flow forecasting is for a business, especially right now. That’s why we’ve created a cash flow forecast template for you to start using for free today. Simply hit the button below and it’s yours.

Do you know exactly how much cash is coming into and out of your business? If not, that could be a problem. Forecasting how much cash your business is going to have in the coming weeks and months is crucial for business survival. But do you know how to create a cash flow forecast? If not, we’ve built this handy cash flow template for you to get started. Just make a copy of it and adjust it to suit your business.

This easy to use cash flow template can help you quickly calculate your total expenses and look at your expected earnings. Simply input the relevant numbers and the cash flow template will help you forecast your business’ future.

Get your free cash flow forecast template

What is a cash flow forecast?

A cash flow forecast is a plan of when cash will come into and out of your business, while clearly showing what you’ll have in your bank account at the end of the month. Cash flow forecasting typically looks at two types of data:

• Actual cash flow
• Forecast cash flow

That means you should look at what your cash flow looks like both now and in the future. A cash flow forecast should include all of your known and expected business expenses, like office rental and staff wages, as well as all of your revenue sources, such as product sales.

Why is a cash flow template important?

A cash flow forecast predicts exactly when and how much cash is going to enter and leave your business over time, allowing you to prepare for cash crunches and surpluses.

Having an accurate cash flow forecast that is updated regularly can provide you with a useful snapshot of the health of your business that can be shared internally or with external stakeholders such as board members or investors.

A cash flow forecast will ensure you keep on top of your business’ financial outlook, helping you with things like:

• Planning ahead for cash shortages and surpluses
• Scenario planning for ‘what if’ questions in the future
• Track your daily, weekly and monthly spending to ensure you stick to your budgets
• Navigating the ups and downs of cash flow, especially if you rely on contracts and project work
• Understanding the impact of late payments from clients

Is it a good idea to use a cash flow spreadsheet?

Using a cash flow forecast template in Excel, Google Sheets or Numbers is definitely a good first step. However, it does come with significant limitations. Spreadsheets are prone to error, and need constant updating. The more your business grows, the harder it will be to maintain a manual cash flow forecast.

If you’d like to compare the differences, check out this article on using cash flow forecasting software versus using a spreadsheet .

How to use the Float cash flow template

Our cash flow template is easy to use – even if you’ve never done any forecasting before. 

First, make a copy of our cash flow template , or if you’re a Xero user, you can download your Cash Summary directly into a spreadsheet and use it to build your forecast with this guide . 

There are two main sections to fill out. The first is cash in, where you’ll outline money that’s coming into your business. We’ve included lines for:

• Anticipated sales
• Loans or investment
• Other sources of cash or equity
• Interest income

If any of these don’t apply to your business, just delete the row – or if there’s an additional source of income for your company, you can add that in.

The second section is cash out, where you’ll list all the expenses incurred by your businesses. Be sure to include those that you pay every month, like rent, as well as less regular expenses, such as utilities and taxes. This section of the forecast will include things like insurance, telephone and internet, business equipment, and marketing expenses.

Once you’ve entered all of your income and expenditure figures, the template will automatically calculate the difference. If the figure is positive, congratulations! It means that you’re anticipating your income to be greater than your expenditure, and you can start thinking about what to do with your surplus cash . If the figure is negative, it means that you’re forecast to spend more than you earn – but knowing that this in advance means that you can plan ahead and prepare for it.

Why do I need to keep updating my forecast?

The grunt work comes with keeping your numbers up-to-date. Set aside time every week to look at what cash has moved and update your projections accordingly. It’s a time-consuming task, but pop a regular time slot in your calendar to work through it, grab a cup of tea, and work through the figures to ensure your forecast stays up to date.

Without an accurate forecast, your business cannot predict how much cash it will have on hand weeks, months, or years down the road. A spreadsheet full of best guesses that aren’t tied to the day to day reality of your business will stop being useful very quickly. 

Make sure you double-check what you’ve entered, as it’s all too easy to accidentally put an extra zero where it shouldn’t be.

Can I automate my cash flow forecast?

If the pain of forecasting manually in a spreadsheet becomes too great and you use online accounting software such as Xero or QuickBooks Online , you should consider using an app or add-on to manage the updating for you.

Check out the Xero Marketplace or QBO App Store , which provides a wide range of bolt ons that can automate many of the processes that can cause headaches when managing your cash. Float is one of these apps, and can create and automatically update your cash flow forecast using the data in your Xero or QuickBooks Online account.

Other add-ons that can help you keep a handle on your cash flow include Chaser , which automates the task of chasing clients to pay their invoices, and Dext , which streamlines the staff expense claims process.

Want to try out our cash flow forecasting app? Sign up for a free trial and find out why our users think it’s so much better than a spreadsheet!

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Free Cash Flow Forecast

Download our free cash flow forecast template and make better spending decisions, what is a cash flow forecast.

A cash flow forecast estimates the money you expect your business to bring in and payout over time. It should reflect all your likely revenue sources (like sales or other payments) and compare them against your business expenses (like supplier payments, rent, and tax payments).

An accurate cash flow forecast helps businesses to predict future cash positions, avoid crippling cash shortages, and earn returns on any cash surplus they may have in the most efficient manner possible.

Follow four simple steps to build your cash flow forecast:

• Decide how far out you want to plan for
• List all your income
• List all your outgoings
• Work out your running cash flow

What a cash flow forecast will tell you

A cash flow forecast is for looking into the future. It will help you predict how much money will be in the bank next week, next month, or even next year, which allows you to:

• Better plan your business activities and resources and avoid overtrading
• Allows you to better understand your business performance
• Supports you in making sensible, realistic decisions for your business
• Gives you greater control over your business finances
• Helps you plan for the future

Download your free template

About fleximize.

Fleximize is a multi-award-winning digital business lender dedicated to providing UK SMEs with flexible finance, done properly. Since launching in 2014, we’ve supported thousands of small businesses with over £300 million in funding.

As well as funding the underserved, we’re on a mission to drive transparency and demystify commercial finance. Business funding is evolving for the better, and we’re proud to be part of the revolution.

Fleximize does not provide accounting, tax, business, or legal advice. This template has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business.

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Cash Flow Statement Template for Excel

Download a Free Template for Cash Flow Forecast

Brixx has created a free cash flow forecasting template to help ease the workload of setting up your cash flow forecasting spreadsheet.

If you aren’t aware of how much cash is going in and out of your business then you may have a risk to your business survival and potential for success.

Because cash flow is the lifeblood of any business, having a Cash Flow Forecast Template allows you to quickly calculate expenses and expected earnings to predict your company’s future finances.

What is a Cash Flow Forecast?

Cash flow is the lifeblood of any business. This means that understanding the cash flow is an essential activity for your company:

• Predict cash movements
• Understand when you might run out of cash
• Plan the best time to invest the cash back into your business for growth
• Plan your cash reserves to cover risk of unexpected demand for cash
• Validate your business model
• Foresee cash flow issues in time to take action and solve

Building a cash flow forecast spreadsheet (sometimes called a cash flow projection or cash flow model) can be time-consuming and painful. But our free Cash Flow Forecast Template for Excel and Google Sheets helps ease the process.

How to use a cash flow forecast template

In our template you’ll find:

• Automatic formulas
• An adaptable structure
• Handy notes to help you input your numbers
• Extra rows for expenditure – crucial for breaking down what’s costing your business money, and more importantly, when these costs hit your cash flow
• Extra rows for income – breaking down income sources helps you get a better grip of which products make you the most money.

All these handy features will allow you to create better, more accurate, more bespoke forecasts for your business. As with many things in life, the first step to learning is to try it out. 

Plug in your expected numbers and the template will do the calculations for you, summing all of the totals and putting the right positives and negatives on each account line.

Make sure you are on top of your numbers.

Using specialised software for cash flow forecasting

A cash flow forecast or cash flow projection is merely one aspect of gaining a better financial understanding of your business. While templates make life easier, often, business owners and decision-makers are looking for more than just the data.

For that reason alone, businesses should consider using specialised software to better manage, forecast and present their financial data. A tool will allow them to present in a way that is meaningful to the company’s progression.  For less work, specialised tools can deliver faster, broader and more accurate results than spreadsheet forecasts.

With Brixx, you can visualise your cash flow, profitability and balance sheet progression on beautiful charts, all automatically generated from your inputs and more. Sign up below.

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• Cash Flow Projection – The Comple...

Cash Flow Projection – The Complete Guide

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Key Takeaways

• Cash flow projection is a vital tool for financial decision-making, providing a clear view of future cash movements.
• Cash flow is crucial for business survival and includes managing cash effectively and providing a financial planning roadmap.
• Automation in cash flow management is a game-changer. It enhances accuracy, efficiency, and scalability in projecting cash flows, helping businesses avoid common pitfalls.

Introduction

Cash flow is the lifeblood of any business. Yet, many companies constantly face the looming threat of cash shortages, often leading to their downfall. Despite its paramount importance, cash flow management can be overwhelming, leaving businesses uncertain about their financial stability.

But fear not, there’s a straightforward solution to this common problem – cash flow projection. By mastering the art of cash flow projection, you can gain better control over your finances and steer your business away from potential financial crises. Cash flow projections offer a proactive approach to managing cash flow, enabling you to anticipate challenges and make informed decisions to safeguard the future of your business.

If you’re unsure how to accurately perform cash flow projections or if you’re new to the concept altogether, this article explains everything you need to know, provides you with a step-by-step guide to preparing cash flow projections and highlights the key role automation plays in enhancing the effectiveness of these projections. 

What Is Cash Flow Projection?

Cash flow projection is a financial forecast that estimates the future inflows and outflows of cash for a specified period, typically using a cash flow projection template. It helps businesses anticipate liquidity needs, plan investments, and ensure financial stability.

Think of cash flow projection as a financial crystal ball that allows you to peek into the future of your business’s cash movements. It involves mapping out the expected cash inflows (receivables) from sales, investments, and financing activities and the anticipated cash outflows (payables) for expenses, investments, and debt repayments.

It provides invaluable foresight into your business’s anticipated cash position, helping you plan for potential shortfalls, identify surplus funds, and make informed financial decisions.

Why Are Cash Flow Projections Important for Your Business?

Managing cash flow is a critical aspect of running a successful business. It can be the determining factor between flourishing and filing for Chapter 11  bankruptcy .

In fact, studies reveal that 30% of business failures stem from running out of money. To avoid such a fate, by understanding and predicting the inflow and outflow of cash, businesses can make informed decisions, plan effectively, and steer clear of potential financial disasters.

Calculating projected cash flow is a crucial process for businesses to anticipate their future financial health and make informed decisions. This process involves forecasting expected cash inflows and outflows over a specific period using historical data, sales forecasts, expense projections, and other relevant information. Regularly updating and reviewing projected cash flow helps businesses identify potential cash shortages or surpluses, allowing for proactive cash management strategies and financial planning.

Cash Flow Projection vs. Cash Flow Forecast

Having control over your cash flow is the key to a successful business. By understanding the differences between cash flow forecasts and projections, business owners can use these tools more effectively to manage their finances and plan for the future. 

Step-by-Step Guide to Creating a Cash Flow Projection

An effective cash flow projection enables better management of business finances. Here is a step-by-step process to create cash flow projections:

Step 1: Choose the type of projection model

• Determine the appropriate projection model based on your business needs and planning horizon.
• Consider the following factors when choosing a projection model:
• Short-term projections : Covering 3-12 months, these projections are suitable for immediate planning and monitoring.
• Long-term projections : Extending beyond 12 months, these projections provide insights for strategic decision-making and future planning.
• Combination approach : Use a combination of short-term and long-term projections to address both immediate and long-range goals.

Step 2: Gather historical data and sales information

• Collect relevant historical financial data, including cash inflows and outflows from previous periods.
• Analyze sales information, considering seasonality, customer payment patterns, and market trends.

Pro Tip: Finance teams often utilize accounting software to ingest a range of historical and transactional data. 

Step 3: Project cash inflows

• Estimate cash inflows based on sales forecasts, considering factors such as payment terms and collection periods.
• Utilize historical data and market insights to refine your projections.

Step 4: Estimate cash outflows

• Identify and categorize various cash outflow components, such as operating expenses, loan repayments, supplier payments, and taxes.
• Use historical data and expense forecasts to estimate the timing and amount of cash outflows.

Pro Tip: By referencing the cash flow statement, you can identify the sources of cash inflows and outflow s. 

Step 5: Calculate opening and closing balances

• Calculate the opening balance for each period, which represents the cash available at the beginning of the period.
• Opening Balance = Previous Closing Balance
• Calculate the closing balance by considering the opening balance, cash inflows, and cash outflows for the period.
• Closing Balance = Opening Balance + Cash Inflows – Cash Outflows

Step 6: Account for timing and payment terms

• Consider the timing of cash inflows and outflows to create a realistic cash flow timeline.
• Account for payment terms with customers and suppliers to align projections with cash movements.

Step 7: Calculate net cash flow

• Calculate the net cash flow for each period, which represents the difference between cash inflows and cash outflows.
• Net Cash Flow = Cash Inflows – Cash Outflows

Pro Tip: Calculating the net cash flow for each period is vital for your business, as it gives you a clear picture of your future cash position. Think of it as your future cash flow calculation.

Step 8: Build contingency plans

• Incorporate contingency plans to mitigate unexpected events impacting cash flow, such as economic downturns or late payments.
• Create buffers in your projections to handle unforeseen circumstances.

Step 9: Implement rolling forecasts

• Embrace a rolling forecast approach, where you regularly update and refine your cash flow projections based on actual performance and changing circumstances.
• Rolling forecasts provide a dynamic view of your cash flow, allowing for adjustments and increased accuracy.

Cash Flow Projection Example

Let’s take a sneak peek into the cash flow projection of Pizza Planet, a hypothetical firm. In March, they began with an opening balance of $50,000. This snapshot will show us how their finances evolved during the next 4 months.

Here are 5 key takeaways from the above cash flow projection analysis for Pizza Planet:

Upsurge in Cash Flow from Receivables Collection (April):

• Successful efforts at collecting outstanding customer payments result in a significant increase in cash flow.
• Indicates effective accounts receivable management and timely collection processes.

Buffer Cash Addition (May and June):

• The company proactively adds buffer cash to prepare for potential financial disruptions.
• Demonstrates a prudent approach to financial planning and readiness for unexpected challenges.

Spike in Cash Outflow from Loan Payment (May):

• A noticeable cash outflow increase is attributed to the repayment of borrowed funds.
• It suggests a commitment to honoring loan obligations and maintaining a healthy financial standing.

Manageable Negative Net Cash Flow (May and June):

• A negative net cash flow during these months is offset by a positive net cash flow in other months.
• Indicates the ability to handle short-term cash fluctuations and maintain overall financial stability.

Consistent Closing Balance Growth:

• The closing balance exhibits a consistent and upward trend over the projection period.
• Reflects effective cash flow management, where inflows cover outflows and support the growth of the closing cash position.

Overall, the cash flow projection portrays a healthy cash flow for Pizza Planet, highlighting their ability to collect receivables, plan for contingencies, manage loan obligations, have resilience in managing short-term fluctuations, and steadily improve their cash position over time.

How to Calculate Projected Cash Flow?

To calculate projected cash flow, start by estimating incoming cash from sources like sales, investments, and financing. Then, deduct anticipated cash outflows such as operating expenses, loan payments, taxes, and capital expenditures. The resulting net cash flow clearly shows how much cash the business expects to generate or use within the forecasted period. 

Calculating projected cash flow is a crucial process for businesses to anticipate their future financial health and make informed decisions. This process involves forecasting expected cash inflows and outflows over a specific period using historical data, sales forecasts, expense projections, and other relevant information. Regularly updating and reviewing projected cash flow helps businesses identify potential cash shortages or surpluses, allowing for proactive cash management strategies and financial planning. 

Download our cash flow calculator to effortlessly track your company’s operating cash flow,

net cash flow (in/out), projected cash flow, and closing balance.

6 Common Pitfalls to Avoid When Creating Cash Flow Projections

At HighRadius, we recently turned our research engine toward cash flow forecasting to shed light on the sources of projection failures. One of our significant findings was that most companies opt for unrealistic projection models that don’t mirror the actual workings of their finance department.

Cash flow projections are only as strong as the numbers behind them. No one can be completely certain months in advance if they will encounter any unexpected events. Defining a realistic cash flow projection for your company is crucial to achieving more accurate results. Don’t let optimism cloud your key assumptions. Stick to the most likely numbers for your projections.

A 5% variance is acceptable, but exceeding this threshold warrants a closer look at your key assumptions. Identify any logical flaws that may compromise accuracy. Take note of these pitfall insights we’ve gathered from finance executives who have shared their experiences:

• Avoid overly generous sales forecasts that can undermine projection accuracy.
• Maintain a realistic approach to sales projections to ensure reliable cash flow projections.

Accounts Receivable: 

• Reflect the payment behaviour of your customers accurately in projections, especially if they tend to pay on the last possible day despite a 30-day payment schedule.
• Adjust the projection cycle to align with the actual payment patterns.
• Factor in annual and quarterly bills on the payables side of your projections.
• Consider potential changes in tax rates if your business is expected to reach a new tax level.
• Account for seasonal fluctuations and cyclical trends specific to your industry.
• Analyze historical data to identify patterns and adjust projections accordingly to reflect these variations.
• Incorporate contingencies in your projections to prepare for unforeseen circumstances such as economic downturns, natural disasters, or changes in market conditions.
• Build buffers to mitigate the impact of unexpected events on your cash flow.
• Failing to create multiple scenarios can leave you unprepared for different business outcomes.
• Develop projections for best-case, worst-case, and moderate scenarios to assess the impact of various circumstances on cash flow.

By addressing these pitfalls and adopting these best practices shared by finance executives, you can create more reliable and effective cash flow projections for your business. Stay proactive and keep your projections aligned with the realities of your industry and market conditions.

How Automation Helps in Projecting Cash Flow?

Building a cash flow projection chart is just the first step; the real power lies in the insights it can provide. Cash flow projection is crucial, but let’s face it – the traditional process is resource-consuming and hampers productivity. 

However, there’s a solution: a cash flow projection chart automation tool. 

Professionals in treasury understand this need for automation, but it requires an investment of time and money. Building a compelling business case is straightforward, especially for companies prioritizing cash reporting, forecasting, and leveraging the output for day-to-day cash management and investment planning.

Consider the following 3 business use cases shared by finance executives, highlighting the benefits of automated cash flow projections that far outweigh the initial investment:

Scalability and adaptability:

Forecasting cash flow in spreadsheets is manageable in the early stages, but as your business grows, it becomes challenging and resource-intensive. Manual cash flow management struggles to keep up with the increasing transactions and customer portfolios.

Many businesses rely on one-off solutions that only temporarily patch up cash flow processes without considering the implications for the future. Your business needs an automation tool that can effortlessly scale with your business, accommodating evolving needs.

Moreover, by opting for customization options, you can tailor the cash flow projections to your specific business requirements and adapt to changing market dynamics.

Time savings:

Consider a simple example of the time and effort involved in compiling a 13-week cash flow projection for stakeholders every week. The process typically includes:

• Capture cash flow data from banking and accounting platforms and classify transactions.
• Create short-term forecasts using payables and receivables data.
• Model budgets and other business plans for medium-term forecasts.
• Collect data from various business units, subsidiaries, and inventory levels.
• Consolidate the data into a single cash flow projection.
• Perform variance and sensitivity analysis.
• Compile reporting with commentary.

This process alone can consume many hours each week. Let’s assume it takes six hours for a single resource and another six hours for other contributors, totalling 12 hours per week or 624 hours per year. 

By implementing a cash flow projection automation tool, you can say goodbye to tedious manual tasks such as logging in, downloading data, updating spreadsheets, and compiling reports. Automating these processes saves your team countless hours, allowing them to focus on strategic initiatives and high-value activities.

Imagine the added time spent on data conversations, information requests, and follow-ups. Cash reporting can quickly become an ongoing, never-ending process.

By implementing a cash flow projection automation tool, you can say goodbye to tedious manual tasks such as logging in, downloading data, manipulating spreadsheets, and compiling reports. Automating these processes saves your team countless hours, allowing them to focus on strategic initiatives and high-value activities.

Accuracy and efficiency:

When it comes to cash flow monitoring and projection, accuracy is paramount for effective risk management. However, manual data handling introduces the risk of human error, which can have significant financial implications for businesses. These challenges are:

• Inaccurate financial decision-making
• Cash flow uncertainty
• Increased financial risks
• Impaired stakeholder confidence
• Wasted resources and time
• Compliance and reporting challenges
• Inconsistent data processing

Automating cash flow projections mitigates these risks by ensuring accurate and reliable results. An automation tool’s consistent data processing, real-time integration, error detection, and data validation capabilities instill greater accuracy, reliability, and confidence in the projected cash flow figures.

For example, Harris, a leading national mechanical contractor, transformed their cash flow management by adopting an automation tool. They achieved up to 85% accuracy across forecasts for 900+ projects and gained multiple 360-view projection horizons, from 1 day to 6 months, updated daily. This improvement in accuracy allowed the team to focus on higher-value tasks, driving better outcomes.

Cash Flow Projections with HighRadius

Managing cash flow projections today requires a host of tools to track data, usage, and historic revenue trends as seen above. Teams rely on spreadsheets, data warehouses, business intelligence tools, and analysts to compile and report the data.

Discover the power of HighRadius cash flow forecasting software , designed to precisely capture and analyze diverse scenarios, seamlessly integrating them into your cash forecasts. By visualizing the impact of these scenarios on your cash flows in real time, you gain a comprehensive understanding of potential outcomes and can proactively respond to changing circumstances.

Here’s how AI takes variance analysis to the next level and helps you generate accurate cash flow forecasts with low variance. It automates the collection of data on past cash flows, including bank statements, accounts receivable, accounts payable, and other financial transactions, and integrates with most financial systems. This data is analyzed to detect patterns and trends that can be used to anticipate future cash flows. Based on this historical analysis and regression analysis of complex cash flow categories such as A/R and A/P, AI selects an algorithm that can provide an accurate cash forecast.

When your forecast is off, you can miss opportunities to invest in growth or undermine your credibility and investor confidence. An accurate forecast means predictable growth and increased shareholder confidence. 

1. How do you prepare a projected cash flow statement?

Steps to prepare a projected cash flow statement:

• Analyze historical cash flows.
• Estimate future sales and collections from customers.
• Forecast expected payments to suppliers and vendors.
• Consider changes in operating, investing, and financing activities.
• Compile all these estimates into a projected cash flow statement for the desired period.

2. What is a projected cash flow budget?

A projected cash flow budget is a financial statement that estimates the amount of cash your business is expected to receive and pay out over a specific time period. This information can help your business have enough cash flow to maintain its regular operations during the given period.

3. What is a 3-year projected cash flow statement?

A 3-year projected cash flow statement forecasts cash inflows and outflows for the next three years. It helps businesses assess their expected cash position and plan for future financial needs and opportunities.

4. What are projected cash flow and fund flow statements?

A projected cash flow statement forecasts cash inflows and outflows over a period, aiding in budgeting and planning. The fund flow statement tracks the movement of funds between sources and uses, analyzing the financial position. Both provide insights into a company’s liquidity and financial health.

5. What are the four key uses of a cash flow forecast?

• Evaluate cash availability for operational expenses and investments.
• Identify potential cash flow gaps or surpluses.
• Support financial planning, budgeting, and decision-making.
• Assist in securing financing or negotiating favorable terms with stakeholders.

6. What is the cash flow projection ratio?

The term cash flow projection ratio is not a commonly used financial ratio. However, various ratios like operating cash flow ratio, cash flow margin, and cash flow coverage ratio are used to assess a company’s cash flow generation and management capabilities.

7. What is the formula for projected cash flow?

The projected cash flow formula is Projected Cash Flow = Projected Cash Inflows – Projected Cash Outflows . It calculates the anticipated net cash flow by subtracting projected expenses from projected revenues, considering all sources of inflows and outflows.

8. What are the advantages of cash flow projection?

Cash flow projection helps businesses:

• Anticipate future financial needs
• Manage cash shortages effectively
• Make informed decisions
• Ensure stability and growth
• Provide a roadmap for financial planning
• Stay proactive in managing finances

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If you’re not honing in on your cash flow, it’s easy to underestimate or forget about upcoming expenses. In the worst-case scenario for an up-and-coming startup, this could result in your organization running out of money.

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Frequently asked questions, what is a cash flow forecast template and why use one.

A cash flow forecast template helps you predict the movement of money in and out of your business over a specific period. It provides a structured format for estimating cash inflows (e.G., sales revenue) and outflows (e.G., expenses, loan repayments). Using a cash flow forecast template allows you to anticipate potential shortfalls, make informed financial decisions, and ensure you have enough cash on hand to cover your obligations.

How Can You Customize a Cash Flow Forecast Template?

Most cash flow forecast templates are flexible. You can tailor them to your business by adding or removing categories to reflect your specific income and expense streams. You can also adjust the forecast period to align with your planning needs (e.G., weekly, monthly, or quarterly).

Who Typically Uses a Cash Flow Forecast Template?

Cash flow forecast templates are valuable for businesses of all sizes. They are particularly helpful for startups managing their initial cash flow, established businesses planning for growth, and anyone involved in financial planning and analysis.

How Can Project Management Software Help with the Template?

Project management software can boost your cash flow forecast template in some ways. Integration with accounting software can smooth data entry for historical financial data. Additionally, some platforms offer functionalities like scenario planning, allowing you to model different cash flow outcomes based on various assumptions.

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User-friendly 3-year cash flow projection template for hassle-free forecasting

A cash flow projection is a crucial tool for businesses to forecast their future financial health. With a 3-year cash flow projection template , a financial forecast can be made that estimates the anticipated inflows and outflows of cash for a business over a three-year period.

Estimating the inflows and outflows of cash over a 3-year timeline provides insights into the expected cash position of the company and helps in assessing its financial health and sustainability. Businesses can make informed decisions, plan for growth, and identify potential cash shortages based on such financial forecasts.

What is a cash flow spreadsheet?

A cash flow spreadsheet, also called a cash flow statement projection, uses software like Excel or Google Sheets to track and analyse cash inflows and outflows.

The spreadsheet has columns for periods (e.g., months) and rows for cash flow categories. This tool allows input of actual and projected numbers, providing a visual representation of trends and aiding cash flow monitoring. It helps identify shortages/surpluses and informs financial decisions. Formulas automate calculations, generating summaries, charts, and graphs. Crucial for financial planning, budgeting, and forecasting, this spreadsheet streamlines the analysis and interpretation of cash flow data.

What is a projected 3-year cash flow?

A projected 3-year cash flow is a financial statement that outlines the anticipated cash inflows and outflows for a business over a specific three-year timeframe. It takes into account factors such as sales revenue, expenses, investments, loan repayments, and other sources. It uses cash to determine the net cash position at the end of each period.

Using a 3-year cash flow projection template, a projection is made, which serves as a tool for businesses to plan and make informed financial decisions.

Purpose of a projected 3-year cash flow for businesses

The primary purpose of a projected 3-year cash flow is to provide a forward-looking view of a company's cash position. Estimating future cash flows helps businesses to :

Forecast financial health: A projected cash flow allows businesses to assess their financial health and solvency by identifying potential cash shortfalls or surpluses in advance.

Plan for growth: The forecasting helps in evaluating the financial feasibility of growth strategies, such as expanding operations, entering new markets, or investing in new products or services.

Identify financing needs: It enables businesses to determine if additional financings, such as loans or equity investments, will be required to cover anticipated cash deficits or support growth initiatives.

Make informed decisions: With a clear understanding of future cash flows, businesses can make informed decisions about expenditures, pricing strategies, cost management, and investment opportunities.

How to do yearly cash flow projection?

To create a yearly cash flow projection, follow these steps:

• Set up spreadsheet: Organise categories, ensure systematic data entry and calculations.
• Identify and estimate cash inflows: Consider sales revenue, receivables, interest income, etc.
• Identify and estimate cash outflows: Categorise and estimate expenses like rent, payroll, and loans.
• Calculate net cash flow: Subtract total outflows from inflows for surplus/deficit.
• Calculate opening and closing balances: Consider the previous period's closing balance, and add net cash flow.
• Review and adjust: Compare projection to actual data, and update for accuracy.
• Monitor and update: Stay informed of changes in revenue, expenses, and market conditions.
• Analyse and make decisions: Compare projections to goals, assess financial health, and make informed choices for cost management, investments, and strategies.

By forecasting future cash flows, businesses can proactively address potential financial challenges, plan for growth, and make informed decisions.

How to do triennial cash flow projections?

The process of creating a yearly cash flow projection is similar to that of a three-year cash flow projection. To create a projected 3-year cash flow, businesses gather historical financial data and use it as a basis for estimating future cash flows.

By analysing past trends and considering factors such as market conditions, sales forecasts, expense projections, and capital expenditure plans, businesses can build a comprehensive and realistic cash flow projection.

Step 1: Gather historical data

To begin, collect your company's historical financial statements, including balance sheets, income statements, and c ash flow statements for the past three years. This data will serve as a foundation for building your cash flow forecast.

Step 2: Identify cash inflows

List all potential sources of cash inflows , such as sales revenue, loans, investments, and other income streams. Analyse your historical data to determine the average amounts and timing of these inflows. Consider factors like seasonality, market trends, and any upcoming changes in your business operations that may affect cash inflows.

Step 3: Estimate cash outflows

Next, identify and categorise your expected cash outflows. This includes costs such as employee salaries, rent, utilities, raw materials, marketing expenses, loan repayments, and taxes. Again, refer to your historical financial data and account for any anticipated changes in costs, such as upcoming investments or cost-saving measures.

Step 4: Calculate net cash flow

By deducting the total cash outflows from the total cash inflows, you can calculate your net cash flow for each period. A cash flow positive indicates a surplus, while a negative value indicates a cash deficit. Be realistic and conservative in your estimations to ensure accuracy in your projection.

Step 5: Consider cash reserves and financing options

Assess your current cash reserves and determine if they are sufficient to cover any projected cash deficits .

Explore financing options such as bank loans, lines of credit, or equity investments to bridge the gap, if any. Incorporate these additional funds into your projection, including the associated costs and repayment terms.

Step 6: Review and refine

Regularly review and refine your cash flow projection as new information becomes available or circumstances change. Update your projection at least on a quarterly basis, comparing the actual results with your projections to identify any discrepancies or adjustments required.

What is a cash flow statement template?

A cash flow statement template is a tool used to present a business's cash inflows & outflows over a specific period. The template provides a structured format to organise and analyse cash flow information, allowing businesses and individuals to assess their liquidity, financial health, and cash management capabilities. It helps track the movement of cash throughout different activities, such as operating, investing, and financing activities.

A typical cash flow statement template consists of the following:

Opening Cash Balance: It represents the cash balance at the beginning of the period.

Cash Inflows: These include the sources of cash during the period, such as cash received from sales, interest income, dividends, or any other cash receipts.

Cash Outflows: These accounts for the cash payments made during the period, including expenses, purchases of assets, interest payments, taxes, and other operating costs.

Operating Activities: It summarises the cash flows related to the core operations of the business, such as revenue incurred from sales, payments made to suppliers, salaries & wages, and other operating expenses.

Investing Activities: It captures cash flows from investing activities, such as purchases or sales of property, plant, and equipment, investments in other businesses, or proceeds from the sale of investments.

Financing Activities: It records cash flows from financing activities, including proceeds from loans, issuance of stock, repayment of debt, or payment of dividends.

Net Cash Flow: It calculates the net increase or decrease in cash during the period by deducting the total cash outflows from the total cash inflows.

Closing Cash Balance: It shows the cash balance at the end of the period, which is calculated by adding the net cash flow to the opening cash balance.

Free 3-year Cash flow projection template for easy use

Benefits of using a 3-year cash flow projection template.

The benefits of using a 3-year cash flow projection template are:

• Gain a comprehensive understanding of how future projects affect your business's financial performance.
• Anticipate and plan for any potential cash shortfalls, allowing you to effectively strategise and manage your resources.
• Proactively adjust and adapt to changes by utilising the insights from the 3-year projections.
• Utilise the projections to outline and formulate growth and expansion strategies.
• Perform variance analysis to compare and assess the variance between budgeted and actual cash flows.
• Enhance your chances of securing bank loans and external financing by presenting a solid cash flow and forecast and demonstrating a strong repayment capacity.
• Conduct accurate analysis of detailed scenarios, enabling you to make informed decisions.
• Evaluate the impact of cost-saving measures on future cash flows and overall business valuations.

Creating a 3-year cash flow projection is an essential financial planning exercise for businesses. It is a valuable financial planning tool that helps businesses anticipate and manage their cash position.

By analysing historical data, estimating cash inflows and outflows, and considering potential financing options, you can gain valuable insights into your company's financial future.

Regularly updating and revising the projection based on actual results and changing circumstances allows businesses to stay on top of their financial situation and ensure long-term sustainability.

A 3-year cash flow forecast is crucial for long-term cash planning. How can you manage your cash flow better? Agicap is a cash management software that allows you to manage your business effectively. Try it out for free!

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How to Create a Cash Flow Forecast, with Templates and Examples

By Andy Marker | August 26, 2020 (updated October 16, 2021)

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A cash flow forecast is vital for any company to assess its overall health, and to ensure it will have the cash necessary to pay the bills. This article includes expert advice on creating a basic cash flow forecast.

Included on this page, you’ll find the benefits of cash flow forecasts , the methods to create a cash flow forecast , downloadable templates , and an example cash flow forecast that shows why having a forecast is so critical.

What Is a Cash Flow Forecast?

A cash flow forecast provides estimates of a company’s future revenue and expenses. The forecast shows the cash a company will have on-hand at various future dates and is a vital financial document for any company.

In a cash flow forecast, “cash” refers to funds that are easily available and spendable — this includes money in checking and savings accounts, as well as other funds that you can quickly convert into cash to spend.

A simple cash flow forecast might take a few hours to create, and then about an hour to update, which you should do periodically.

Here are some primary ways a cash flow forecast can add value to your company:

• Liquidity Management: The forecast provides insight into how much cash a company will have on hand to pay upcoming bills. 
• Interest and Debt Reduction: Understand when your company can use available cash to pay down debt (this can reduce the credit card or loan interest the company has to pay).
• Half-Year or Full-Year Reporting: Gain insight into what your company’s six-month and full-year financial reports will look like.
• Overall Performance Gauging: Use the forecast to help determine whether revenue and cash flows are above or below expectations. These assessments can guide you in making any necessary changes.
• Long-Term Planning: Longer-term forecasts can help with your company’s three-year planning (or longer).

Cash Flow Forecast Challenges and Pitfalls to Avoid

Cash flow forecasting can present challenges if not done correctly. Pitfalls to avoid include using imprecise financial numbers or failing to perform regular cash flow forecasts at all.

Here are details on those and other challenges and pitfalls to avoid:

• Using Imprecise Financial Figures: In 2014, Kyriba, a company that offers cloud-based treasury management software, surveyed more than 200 financial professionals at companies. The survey found that only 32 percent of these employees thought their cash flow forecasts were mostly “accurate.” About 53 percent said their forecasts had “significant” variance. Eight percent said their forecasts were “very inaccurate, with major variances.”About two-thirds — 65 percent — of those respondents said the primary reason for the inaccuracy was they didn’t have the needed “visibility” into the financial numbers that the forecast needed and used. Sometimes this occurs because of poor communication between the departments who supply figures and the department creating the forecast. So, when the financial experts don’t have solid numbers, they make imprecise guesses, which leads to forecasts that can be significantly wrong.
• Having Difficulty in Forecasting Accounts Payable and Accounts Receivable: Companies need solid estimates of these items on the balance sheet in order to create a strong cash flow forecast. 
• Being Overly Optimistic about Future Revenues: We all believe that sales will improve in the next quarter, and improve even more in the quarter after that. But a cash flow forecast is useless if it’s not based on hard realities. Be accurate and realistic about your data — using rosy scenarios for revenue will only cause major problems when those forecasts don’t materialize. Worse, you won’t have money to pay your bills.
• Not Properly Documenting Your Current Financial Activities: Past revenue and expenditures help you accurately predict future cash flow.
• Not Performing a Cash Flow Forecast at All: Some of the above problems may make you avoid performing cash flow forecasts. Or, you may think they are unnecessary because your company is performing well and isn’t showing obvious cash flow problems. However, every company should do cash flow forecasts — even the most successful companies have cash flow variances that can cause problems if they aren’t addressed.

Potential Effects of Not Performing Proper Cash Flow Forecasting

Companies that don’t periodically perform cash flow forecasting often experience cash flow surprises. Those occurrences can cause problems in paying bills or require companies to find cash through financing with high interest rates.

In fact, these problems often cause more than inconvenient surprises. In 2018, a CB Insights study that analyzed 101 startup failures revealed that running out of cash was the second most common cause of business failure — about 29 percent of businesses failed for that reason.

Benefits of a Cash Flow Forecast

Cash flow forecasts provide a number of benefits. They help a company plan for periods when cash will be low, or when it might need financing. Forecasts also offer insight into the effects of sales programs or other business changes.

Here are some benefits of a cash flow forecast:

• Manage Cash Flow: The forecast will show the times when your company will experience surpluses or shortages of cash.

• Evaluate the Value of a New Project: A company may want to create a project cash flow forecast to analyze the revenues and costs from taking on a specific project or job. A project cash flow forecast also helps companies plan for major expenses related to a project. Construction companies and marketing and advertising agencies often create project cash flow forecasts. Learn more about project cash flow forecasts by reading this article.
• Mitigate Obstacles: A forecast can allow you to make adjustments and create contingency plans to deal with significant cash flow change.
• Spot Issues with Customer Payments: A forecast can highlight times at which customers are significantly or habitually late in making payments.
• Keep Suppliers and Employees Happy: Forecasts generally help companies avoid surprising cash shortfalls, which translates to on-time salaries and payments to employees and suppliers.
• Enhance Understanding of Customers and Suppliers: Your company can analyze how to engage customers that repeatedly pay late or suppliers that might offer discounts for upfront payments.
• Boost Profits: Forecasts allow you to track cash flow continually, which can lower borrowing and other costs, and keep your company profitable.
• Helps You Plan for Expected Sales: A forecast helps you plan for expected sales decreases or increases.
• Prepare for Expected Expenses: Forecasts help you plan for expected increases in expenses during a future period.
• Plan for Investments: A forecast can show when you’ll have surplus cash flow, so you can make investments to help your business grow. Menken says it’s vital “to forecast and have an idea of your cash flow, and whether or not an investment now is a good idea, or a growth strategy is a good idea or not.”
• Provide Insights into the Cost of Growth: A forecast will show you the future costs of investments in your business, from new employees to new equipment. Use that data to  analyze whether the investments are worthwhile.
• Reduce the Cost of Capital: A forecast indicates when you will run low on cash, so you can prepare for lower-cost financing.
• Gain Confidence in Your Financial Systems: Regularly scheduled cash flow forecasts will inform your company where your financial systems are working well or need tweaking.

How to Forecast Cash Flow

At its most basic level, a cash flow forecast assesses your organization’s current cash, and then forecasts cash inflows and outflows for a number of periods into the future. The forecast shows expected cash on hand at the end of each period.

Use this cash flow forecast template to provide basic details about your company’s projected cash flow. The template includes sections to list beginning and ending cash balances, cash sources, cash uses, and cash changes during the month. These details provide an accurate picture of your organization’s projected month-by-month financial liquidity. Ultimately, this template will help you identify potential issues that you must address in order for your business to remain on sound fiscal footing. 

Download Cash Flow Forecast Template

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You can find other cash flow forecast templates for specific situations by reading “ Free Cash Flow Forecast Templates .”

5 Basics Steps to Forecasting Cash Flow

There are basic steps that can help with your cash flow forecasting, such as assessing some past financial numbers. You’ll want to make projections on future revenue and costs based on those numbers, as well as other factors.

Here are some basic steps that can help your cash flow forecasting:

• Assess Past Financial Numbers: Take a look at your current and past cash flow statements. (You can learn more about cash flow statements and the formulas you need by reading, link for cash flow-formulas piece.) Review sales figures and overall revenue for the past couple of years, and assess basic expenses for those two years. This time period can give you a good sense of what to expect, including seasonal fluctuations and long-term trends.
• Factor in Some Basic Assumptions for the Future: These assumptions might include the expected change in the consumer price index, wage increases, and seasonal sales. 
• Estimate Revenue: Most of these numbers will come from weekly or monthly sales. Include any price increases (from both your company and its competitors), as well as other external factors. Then, add any non-sales revenue, like tax refunds and asset sales.
• Include Your Receivables Cycle: As part of (or connected to) your revenue estimates, factor in how much sales revenue will be paid in cash and how much will be paid over time. Don’t assume that all sales revenue will come in when your customers’ payments are due. Use payment history to determine what percentage of sales revenue will arrive on time and what percentage might appear in subsequent months.
• Estimate Likely Costs and Outflows: Using your past costs as a guide, estimate likely future expenses. Also include other expected outflows, including those for tax payments, loan payments, and purchase of assets.

Direct vs. Indirect Cash Flow Forecasting

You can perform a cash flow forecasting using either the direct or indirect method. The direct method , ideal for shorter periods, identifies all likely future inflows and outflows. The indirect method , which is best for longer terms, uses forecasts from other financial statements.

You can also use the direct or indirect method to generate cash flow statements.

Tools that Can Help with Forecasting

If you’re just getting started creating a cash flow forecast, a spreadsheet may be the only tool you need. However, as you continue to perform them, you might prefer using software that can automate the process. 

• Cash Flow Forecasting Software: Specialized software can help with cash flow forecasting. One option is LivePlan, which allows you to input financial figures, including sales, expenses, and other numbers for your business. A user can then alter projections to explore various scenarios and see how they affect cash flow and available cash.
• Creating a Spreadsheet: Menken, from The Art of Service, says a company can build a simple spreadsheet that has entries for basic inflows and outflows of cash, including rent, utilities, and wages. Include dates when you pay these bills and other less frequent outflows. “That is how you start to build your cash flow forecast,” she says. “Every day, you complete the spreadsheet for the day with the actual numbers, until you start to get a feeling for the cadence of the business. Do your clients pay on a certain date every month? Do you have subscription sales where you can predict when the money comes into your account? Start to pre-populate your spreadsheet for the next three to six months, until you’re confident it is giving you the correct information.” Then, she says, you can start working on a longer-term forecast.

Why Are Cash Flow Forecasts Important to Small Businesses?

Cash flow forecasts are important for any company, but they are especially critical for small businesses, which may have fewer cash reserves and less access to borrowing money.

• Fewer Cash Reserves: Larger companies may have larger funds of cash, but smaller companies may generally have just enough money on-hand to pay their normal monthly expenses. A month of unexpected costs can deplete those reserves to zero.
• Less Access To Credit: When cash begins to decrease, larger companies likely have more access to credit — from banks and investors, or through other means. Small businesses have fewer options for credit. For example, loans from the Small Business Administration often require an extensive application process. A small business has the time to move through that process only if it’s been able to forecast its cash issues far in advance.

How to Manage a Cash Flow Forecasting Process

In all but the smallest of organizations, a cash flow forecasting process will involve gathering data from several people or departments. In larger organizations, a treasury or finance team will manage the process.

Here are a couple of keys to success for an effective cash flow forecasting process:

• Get Data from People and Systems: A forecast depends on finance systems and statements your organization has already created, and their accuracy. Employees within your organization who understand those systems and that data are also key.
• Employee Buy-In Is Vital: Employees must understand the importance of the cash flow forecast, and be enthusiastic about providing the best data so they can help create the best possible forecast.

Cash Flow Forecasting Best Practices

Experts recommend a number of best practices to create the most accurate cash flow forecasts. Top suggestions include looking closely at past financial numbers; paying attention to unusual costs that might occur; and updating forecasts frequently.

Here are some additional essential best practices:

Get Input from Key People: Employees who understand your company’s financial numbers integrally can provide important input.

Analyze Key Indicators, Like Sales Forecasts: Pay attention to how changes your company makes can affect revenue and thus, your cash flow forecast. For example, a sales strategy to reach a broader group of potential customers can change a forecast.

Understand that Cash Flow and Revenue Are Different: Revenue on your income statement represents what you’ve sold, but not what’s been paid for. So, revenue is not cash or cash flow, and you can’t treat it as cash.“  

You might have a million dollars in sales, then use that million-dollar figure in all of your forecasting calculations,” says Sherif Hassan, CEO of Capiform , which provides smaller banks with an online platform to help them analyze credit and provide loans. Hassan, who also is the Founder and Principal for Syh Strategies, a strategic consulting firm, explains that it's a huge mistake to think that way: that million dollars isn’t in your bank account yet. “That might be the number one reason people run out of money and go out of business,” he shares. “Sales is not cash.”

Look Closely at All Potential Inflows and Outflows: Start with your recent and current financial numbers. Next, consider future factors, like consumer confidence and inflation. Take into account how quickly customers are paying for your company’s services or products, and whether you’re taking steps to improve that speed of payment. And, acknowledge any variability on your costs to do business.

Prepare a List of ‘Other’ Cash Inflows and Outflows: This exercise will help you identify all possible inflows and outflows. Use this time to think about any unusual inflow or outflows — those that don’t occur monthly and may not even occur annually. These might include inflows like tax refunds, government grants, or cash from the sales of assets. Outflows might include new equipment, new benefits from employees, or lawsuit settlements.

Create and Test Various Scenarios: Changing some key variables in your cash flow forecast can help you see how that affects overall cash flow. What if you decide to spend $200,000 to invest in equipment to improve production? What if you add three people to your sales team to bolster sales, or pay for an outside service to collect bad debt? The results of those scenarios can help you decide whether to make certain investments and think about how to bolster cash in various periods.

Timing Is Everything: Cash flow and cash flow forecasting are of course supremely affected by timing. Timing includes the date customers pay you, the date you must pay suppliers, and the date you pay quarterly federal taxes. You must ingrain all of those cash inflows and outflows — both recurring transactions and rare ones — within the forecast.

Monitor Results and Make Adjustments: Whether you do cash flow forecasting every week or every six months, ensure that is informed by actual results. If you do a cash flow forecast monthly, look at your cash flow statement (based on actual results) and make the necessary modifications. 

Build in Variances: Many companies build variances into their forecasts to account for unexpected costs or other small changes in totals. Include an “other” category in expenses that accounts for a small extra percentage of total costs.

Determine How Far Out You Want to Plan: Some companies perform a cash flow forecast every six months. Many others do it more frequently — some even perform weekly cash flow forecasts. If you have predictable annual inflows and outflows, creating a forecast every six months might be sufficient. If you’re a new business, or experience a continual flux in sales and costs, weekly (or even more frequent) forecasts might be necessary.

Don’t Forecast More than 12 Months in Advance: Trying to forecast more than 12 months in advance has limited value. There are too many variables that are impossible to predict more than 12 months out. The forecast you create for 18 months from today will likely be inaccurate.Menken says that cash flow forecasts too far into the future are “always garbage in and garbage out. You’re better off doing a good quality [forecast] over a shorter time. Do that for a couple of short time periods, until you get really good at it. Then, push it out to six months.”

Continually Evaluate: You may decide to perform cash flow forecasts monthly or quarterly. What if circumstances with your company change? Don’t think of any cash flow forecast as written in stone until it’s time to do another. Continually evaluate your budget and any major adjustments. Then, create a new forecast when it makes sense.

Difference between Cash Flow Forecast and Budget

A budget shows expected revenue and expenses for an entire set period (often 12 months). A cash flow forecast shows actual inflows and outflows of cash when they occur — on a monthly, weekly, or even daily basis.

The cash flow forecast reflects actual cash being spent and cash on-hand. A budget outlines income and expenses based on when they occur — not when you receive the income or pay for expenses. A budget also serves as more of a comprehensive planning document, outlining goals for revenue and spending over a year, for example.

Variables that Can Complicate a Cash Flow Forecast

A number of variables in revenue or expenses can complicate cash flow forecasting. They may be somewhat common and only occur occasionally, such as every month or every quarter.

It’s vital to try to predict and account for the following variables in any cash flow forecast:

• Months with an unusual number of paydays for employees. When a company pays employees every two weeks, there are months with three paydays. If your company pays employees every week, there are months with five paydays.
• Seasonal peaks and valleys in sales.
• The need to hire seasonal workers.
• Insurance and other annual payments, which can cause discrepancies on weekly, monthly, or quarterly cash flow forecasts.
• Quarterly estimated tax payments, which cause issues on weekly or monthly cash flow forecasts.

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Original text

The 12-month cash flow statement is one of the three fundamental financial statements for a business. (The other two are the balance statement and the profit and loss statement .)

Like a checking account statement, the cash flow statement shows the money going into and out of your business. You'll include a cash flow statement in the financial section of your business plan. 

What is in a Cash Flow Statement?

The cash flow statement includes:

• Cash received . This might include income from sales, loan proceeds or interest income. You can estimate when you will get paid if you’ve already made sales or received orders.
• Cash paid out . This includes inventory, other purchases, payroll, rent, utilities, taxes, and loan payments. (This cash flow statement template consists of a “pre-startup” column for cash paid out before the cash flow statement period begins.)

Subtract cash paid out from cash received, and you have your cash position for the end of the month.

How to Use a Cash Flow Statement

For new and growing business owners, every dollar counts. Cash flow problems are a common cause of small business failure. Reviewing the company's cash flow statement regularly can help entrepreneurs avoid this fate. New and established business owners can use a cash flow projection to anticipate working capital needs and plan for upcoming expenses. 

Do you need help with your cash flow statement? Connect with a SCORE mentor online or in your community for free, personalized advice.

Small Business Cash Flow – Understanding Money Management Understanding cash flow and money management is critical to tracking profits and reinvesting for business growth.

7 Ways to Survive a Cash Flow Crunch A common challenge for small business owners is keeping their cash flow on an even keel. These 7 ideas can help you navigate a temporary cash shortfall.

3-Year Cash Flow Statement Use this 3-year cash flow statement template to create long-term cash flow projections and test different business scenarios.

Copyright © 2024 SCORE Association, SCORE.org

Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

What is cash flow?

Cash flow is the amount of money that goes in and out of your business.

Cash flowing in is most often the money you get from sales. But it might also be money from debt repayments, selling unnecessary assets, rebates and grants.

Your outgoing cash includes things like:

• payments to suppliers
• maintenance
• other business expenses

Measuring your cash flow

Your business's cash flow is represented in a cash flow statement . A positive cash flow will have more money coming in than going out.

You can improve your cash flow by:

• managing your working capital ( managing stock and payments to suppliers and recovering debts )
• making a cash flow forecast to estimate your income and expenses in the future

Benefits of cash flow forecasting

A cash flow forecast (also known as a cash flow projection) involves estimating cash coming in and going out based on past business performance.

Cash flow forecasting has several benefits:

• less stress worrying where your money will come from
• the ability to identify problems and plan for times when you might be low on cash
• greater confidence paying your staff and suppliers on time, which protects your relationships

How to forecast your cash flow

Cash flow forecasting involves estimating your future sales and expenses.

A cash flow forecast is a vital tool for your business because it will tell you if you'll have enough cash to run the business or expand it. It will also show you when more cash is going out of the business than in.

Follow these steps to prepare your cash flow forecast. You can follow along with our template.

This template is adopted from business.gov.au. © Commonwealth of Australia 2020.

Cash flow is all about timing, so when preparing your forecast, try to be as accurate as possible on the timing of your inflow and outflow estimates.

1. Forecast your income or sales

First, decide on a period that you want to forecast. Most people choose monthly.

To forecast your sales, look at last year's figures to see if you can spot any trends. You can make adjustments to your sales forecast based on whether sales increased, decreased or stayed the same.

If you're a new business and don't have past sales figures, start by estimating all the cash outflows. This will give you an idea of how much money the business needs to bring in to cover it.

But keep in mind that sales figures can change all the time depending on:

• your customer base and how quickly they pay you
• changes in the economy such as interest rates and unemployment rates
• what your competitors are doing

2. Estimate cash inflows

Next you'll estimate your 'cash inflows', or sources of cash other than sales. These will vary from business to business but might include:

• a loan being paid back to you
• selling off an asset
• GST rebates and tax refunds
• government or other grants
• owners investing more money (adding extra equity) in the business
• other sources such as royalties, franchise fees, or licence fees

3. Estimate cash outflows and expenses

When you calculate your cash outflows, work out what it costs to make goods available. This way, if you need to adjust your sales numbers later (for example, if you actually sold 10 units in March when you thought you would sell 5), it will be easier to adjust actual cost of goods sold.

Expenses can be money spent on administration or operation. These will also depend on the type of business.

Other cash outflows

Beyond its normal running expenses, cash leaves a business ('cash outflows') in other ways. Examples are:

• buying new assets
• 'one-off' bank fees such as loan establishment fees
• loan repayments
• payments to the owner(s)
• investing surplus funds

4. Compile the estimates into your cash flow forecast

Since cash flows are all about timing and the flow of cash, you'll need to start with an opening bank balance – this is your actual cash on hand.

Next, add in all the cash inflows and deduct the cash outflows for each period.

The number at the end of each period is referred to as the closing cash balance. This will be the opening cash balance for the next period.

5. Review your estimated cash flows against the actual

Once you've done your cash flow forecast, make sure you go back and check what you estimated against the actual cash flows for the period. This is the most important step. Doing this will highlight any differences between estimated and actual so you can see why your cash flow didn't meet your expectations.

If you're not going to be bringing in enough money to sustain your business, you can then take steps to improve your cash flow .

Tips for an accurate cash flow forecast

Consider the following tips to improve the accuracy of your cash flow forecast:

• If you pay staff fortnightly, some months will have 3 payrolls.
• Don’t forget to include annual registrations, subscriptions and other bills.
• Think about how seasonal changes might affect your cash flow.
• In months when you have more cash coming in than out, put a portion away in your savings for those leaner months.