What is a cash flow forecast?
A cash flow forecast estimates the money expected to come into and leave the business over a future period. It's designed to show when cash may become tight or when there may be capacity to invest.
What a cash flow forecast shows
A cash flow forecast estimates the money expected to come into and leave the business over a future period. It's designed to show when cash may become tight or when there may be capacity to invest.
Profit and cash aren't the same thing
Profit is based on income and costs; cash is based on when money is actually received and paid. Customer payment terms, VAT, tax, loan repayments and capital purchases can therefore make the cash picture very different.
Base it on realistic assumptions
A useful forecast is based on expected sales, payment timings, payroll, supplier commitments, tax and planned spending. The assumptions should be visible so they can be challenged rather than hidden inside a spreadsheet.
Keep it live
A forecast becomes less useful if it is prepared once and left untouched. Update actual cash movements and revise assumptions as the business changes so it remains a live decision-making tool.
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