Cashflow Forecasting: Plan for your business's future

Having enough in the bank to keep your business running is one of the biggest concerns for small business owners. With good reason: lack of funds is the number one reason businesses fail. Check out our list of eight reasons you’ll want to keep a close eye on your cash flow – even if you’re not experiencing problems right now. Then get started using our free template!

  1. Proactively manage cash shortages and surpluses

    Forecasting your future bank balance allows you to see a pending cash shortage that could cripple your business by preventing you from paying your staff, your debtors or yourself – and it gives you enough time to do something about it. By identifying a cash gap well in advance, you put yourself in a position to take proactive action. You could tighten up your payment terms to bridge the gap, or even apply for better loan rates. As the saying goes, forewarned is forearmed.

    It might sound silly, but the reverse situation can also be a problem. Having a cash surplus is great, but if you’re not doing anything with it, that money is gathering dust. If you can predict when you’ll have extra cash in the bank, you can make plans that get that money working for you. Maybe you invest in some new equipment, buy more stock, pay dividends, or take on another project. Cash flow forecasting tells you exactly how much you can afford to safely invest in – or take out of – your business. If you want advance notice of changes to your cash position so that you have time to react appropriately, you should be forecasting your cash flow.

  2. Plan for “what ifs”

    Are you thinking of hiring new staff? Working out a succession plan? Or bringing on investment? Doing a cash flow forecast with different "what if" scenarios helps you see the cash impact of your future plans. In any eventuality, you need to efficiently plan where your cash is going to understand whether a potential plan is feasible.

  3. Track spending and stay in budget

    An overall idea of how much money flows in and out of your business is important, but are you always right? A profit and loss or a balance sheet will give you a snapshot of what is happening right now, but it won’t show you the future in terms of the cash you will actually have. In other words, it won’t be real. With a cash flow forecast that has been updated with actuals, you can compare your best guesses against what actually happened, which will tell you if you need to update your forecast.

  4. Negotiate the "feast or famine" of project work

    If the majority of your income comes from project-based work, you’re probably used to what we call lumpy cash flow. This means that cash often comes in large chunks or not at all. This "feast or famine" requires careful planning so you can build up a cash buffer to weather the dry periods. By consistently forecasting cash flow, you’ll be able to much more easily predict when things might get hairy, allowing you to take action sooner and more effectively.

  5. Confidently take drawings

    We’re guessing that you had lots of reasons for starting your own business, but one of your key drivers is probably to make more money! Forecasting cash flow allows you to understand exactly how much you and your business partners can take in drawings while still meeting your obligations and maintaining a cash buffer. If you only used a profit and loss report to do this, you wouldn't get a true picture of how much cash you’re actually going to have at a specific point, and that could lead you down a perilous path.

  6. Trim operating expenses to increase gross profit

    If you do a direct cash flow forecast, you’ll gain a picture of your budget versus actuals across your entire business, allowing you to understand where you have over- and under-spent. You may uncover surprising areas where efficiencies and cut backs can be made to increase your overall profitability.

  7. Pay your suppliers on time

    Paying suppliers on time and in full has an impact on your business’s reputation, and may affect whether or not suppliers want to work with you. Forecasting your cash lets you see whether you can afford to pay on time, or whether you need to manage expectations with suppliers. Timely payments help you build a positive relationship with your suppliers.

  8. See the impact of late payments and improve credit control

    A direct cash flow forecast that takes into account invoices for your debtors and bills from your creditors means you’ll more easily be able to identify who is consistently paying you late, enhancing your credit control process. You could go a step further, and model different payment dates on overdue invoices to see the true impact of late payments.

That sounds great. So how do I forecast my cashflow?

You can either:

  • ask your accountant for help creating a report that works for you
  • do it yourself in a spreadsheet using the template provided at the bottom of this article

Manual Cash Flow Forecasting Instructions

A Cash Flow Forecast is a projection of the cash you expect to come in and out of your business over a set time period. Make sure you keep your forecast up to date!

Before you get started

Download the template! The link is at the bottom of this article. You can open it using Excel or Google Sheets.

Enter your figures into the indicated cells on the template, and the green cells will auto-calculate based on your entries. Your forecast should match your chart of accounts, so make sure you update the cell names accordingly.

Update your forecast

Once you have set up the forecast template, you will need to update it on a regular basis (we suggest daily or weekly). Make sure to take into account your actuals (cash that has moved and cash that will move from an invoice or bill). This can be a bit time consuming, but it’s worth it to keep your forecast up to date!

A few tips:

    • The template lists a range of common options, but they may not all be applicable to your business. Simply add or remove items as necessary.
    • The template provides a 12 month forecast, and your figures will likely change in this time. Make sure to update your forecast as this happens.
    • Make sure that any predictions you make regarding your cash inflows and outflows are both realistic and supportable. If you're starting a new business, we suggest being conservative with the numbers you enter for the first few months.
    • If any of the numbers you enter result in a negative balance, the negative balance will be displayed in red. Ideally, you want to avoid negative totals or balances, so think about what you can feasibly change in order to achieve this.


You might not have a crystal ball, but now that you've learned how to forecast your cashflow, your bookkeeping future is looking bright!

Make sure to download the template right below this comment so that you can get started!

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