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How to forecast future cash flows

Without a doubt, maintaining a healthy cash flow is one of the most important factors in the success or failure of any small business. It’s a good idea, but how do business owners ensure the money coming in and the money going out lead to a positive bank balance at the end of each week, month or quarter? Easy. With a bit of planning – in the form of a cash flow forecast.


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.


A valuable planning tool for a business‘s financial management, cash flow 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.


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.

Advantages 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.

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

Simple approach to a cash flow forecast

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. Ask yourself the following:


  1. What is your business’s current cash situation? Take your current cash situation as a starting point – how’s it looking?
  2. 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?
  3. 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?
  4. What is the difference between income and expenses?
    Cash Flow = Estimated Income – Estimated Expenses
  5. 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.


If you have a positive figure, you’ll have enough cash flow to take you through to the next quarter. However, 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.

FREE cash flow forecast template

Here’s a ready-made spreadsheet to help you stay on top of your cash inflows and 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.

FREE handy cash flow guide

The best way to measure your company’s health and performance is through cash flow, so if you’d like some more hints and tips about staying on top of your cash flow forecast, our handy cash flow guide is just what you need.


For small business owners who are either starting up or perhaps struggling to stay in the black, focusing on organisation and planning could be the key to unlocking your true potential.


In this handy guide you’ll learn the 8 best reasons why you should invest in a better cash flow strategy. And it’s absolutely free.

Frequently asked questions

How do you create a cash flow forecast?

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.



What is included in a cash flow forecast?

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.



How can a cash flow forecast help a business?

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.

Talk to an expert today

If you’re ready to understand your borrowing options get started here, or call us at 1300 882 867 and a business lending specialist will help you with any questions.