Cash Flow Forecast

What is cash flow forecast?

The purpose of cash flow forecasting is to predict a company’s financial position and liquidity, enabling it to plan for future financial needs and ensure sufficient cash is available to meet obligations. Accurate cash flow forecasting is critical for business planning and stability, as it helps companies anticipate potential cash shortages and avoid financial crises.

Cash flow forecasting is a simple way of predicting where your cash flow will be down the track – without using a crystal ball. It is an estimate of the amount of money you expect to flow in and out of your business and usually covers the coming 12 months, but it can also cover shorter periods like a week or a month.

The main goal of a cash flow forecast is to make sure the business has enough cash to meet its obligations and avoid funding issues over the short to medium term. But it can also form part of a long term plan and cash flow budget. Effectively, cash flow forecasts are a way to ensure improved management of working capital.

Cash flow forecasts are used to:

  • Predict a cash shortage/surplus
  • Compare income and expenses for different periods
  • Estimate the financial effects of particular events, such as adding a new employee
  • Demonstrate to lenders the health of your business

How to calculate your cash flow forecast

A valuable planning tool for a business‘s financial management, cashflow forecasts will help you manage your cash flow because they are the key indicator of the future cash position of a business’s balance sheet.

It’s not difficult to do a cash flow forecast report. You just need to have access to your bank accounts, accounting spreadsheets or software, and invoicing.


Now, with today’s situation in mind let’s look at an analysis of cash flow forecasting for your business for the next quarter.

Free cash flow forecast template

Here’s a ready-made spreadsheet to help you stay on top of your cash outflows, and find out where your finances might need a boost. Our Cash flow Forecast Calculator provides a quick and easy solution to your forecasting needs, and it’s a great place to start.
  • Quick and easy cash flow forecasting for immediate results
  • Select from multiple payment types in drop-down menus
  • Set up coloured alerts for when cash balances fall below a minimum threshold
  • Get monthly insights on your incomings and outgoings with as much detail as you want
  • Combine the results into a living business plan that changes as you grow

Questions to ask yourself when forecasting cashflow:

What is your business’s current cash situation?

Take your current cash situation as a starting point – how’s it looking?

What is your estimated income for next quarter?

Look at how much cash inflow you expect into your business during the next month. This includes revenue, sales made on credit, loans and more. What’s the figure?

What are your estimated expenses for next quarter?

Think about all the expenses you will pay next period – like wages, rent, supplies, vehicle expenses, stock, utilities, insurances etc. Have you got a figure?

What is the difference between income and expenses?

Cash Flow = Estimated Income – Estimated Expenses

Add cash flow to current cash situation.

After you calculate cash flow, you need to add it to your opening cash balance (from 1 above). This will also give you your closing balance. Your closing cash balance will carry over to act as your starting balance for the next period.

Take Control of Your Cash Flow Today

Download our free cash flow forecast template and get a clear picture of your financial needs in minutes.

Create Your Cash Flow Forecast Step-by-step

Gather Financial Data

  • Collect historical financial data to understand past performance.
  • Identify revenue and expense patterns to inform future projections.

Estimate Future Cash Inflows

  • Develop sales projections based on historical data and market trends.
  • Include other income sources such as loans, investments, and other expected revenues.

Estimate Future Cash Outflows

  • Calculate expected operating expenses, including salaries, rent, and utilities
  • Plan for capital expenditures, such as equipment purchases and property improvements.

Prepare the Forecast

  • Use templates or software to organize and structure your forecast.
  • Create a comprehensive cash flow statement that outlines all projected inflows and outflows.

Review and Adjust

  • Regularly review and update the forecast to reflect actual performance and changes in the business environment.
  • Adjust the forecast as needed to account for new information and changing circumstances.

Benefits of cash flow projection

A cash flow forecast is an invaluable tool that gives you a clear picture of where your business is headed. While creating a cash flow forecast isn’t failsafe, it will help you see where you may need to make adjustments. In fact, predicting when shortfalls may emerge in advance using a cash flow forecast will give you the time you need to take action. Some of the main advantages of creating a cash flow forecast are:

Enhances Financial Planning and Decision-Making

Accurate cash flow forecasts allow businesses to make informed decisions about expenditures, investments, and resource allocation, ensuring that funds are available when needed.

Helps in Identifying Potential Cash Shortages

By predicting future cash needs, businesses can identify and address potential cash shortages before they become critical issues, helping to maintain smooth operations.

Improves Investor Confidence and Stakeholder Communication

Reliable cash flow forecasts demonstrate a company’s financial health and planning capabilities, boosting investor confidence and facilitating transparent communication with stakeholders.

Facilitates Effective Cash Management

Understanding future cash flows enables businesses to manage their cash more effectively, optimizing the timing of expenditures and investments to maintain liquidity and financial stability.


Cash flow forecast FAQ

Cash flow forecasting is easy once you are familiar with the concepts. You simply need to know your current cash situation, your expected income and expenses, and you can work out an estimated cash flow forecast. Read the article above, then download our free Cash Flow Forecasting Template.

Cash flow forecasting is really just a prediction of the balance of your income and expenses at a point in the future. You need to know your current cash situation, then use expected income and expenses to determine the figure.

A cash flow forecast can give you an indication of the anticipated health of your business at a time in the future. It can help you prepare for a cash flow shortage in advance. You can use it to predict the financial effects of particular events, such as adding a new staff member. It’s also a fantastic way you can demonstrate to lenders your ability to repay a loan.

Does Your Cashflow Forecast Show A Gap?

If sales forecasts are down due to seasonality, meaning cash flow is looking a bit close to the wire, then you could think about applying for a small business loan or a business line of credit with Prospa to support your cash flow until it picks up again. Talk to our specialists today and explore your options!

Support your cashflow with a Prospa Small Business Loan solution

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