A cash flow forecast helps you see what money is coming into your business, what money is going out, when it happens, and whether your bank balance can cope.
About this episode
Cash keeps a business alive. Sales matter. Profit matters. But if there is not enough cash in the bank to pay bills, wages, loans, suppliers, tax, and day-to-day costs, the business can quickly run into trouble.
In this episode, we look at how to build a cash flow forecast using three simple building blocks: what, when, and how much. These three questions help turn your business story into a practical cash forecast.
We also look at money coming in, money going out, timing differences, credit terms, regular costs, variable costs, surpluses, deficits, and how “what if” planning helps you manage risk before problems hit the bank account.
What you’ll learn in this episode
- Why cash is vital for business survival
- Why profitable businesses can still fail if cash is poorly managed
- How a cash flow forecast helps you plan ahead
- Why every forecast starts with a business story
- How to use what, when, and how much in your forecast
- How to map money coming in and money going out
- Why timing matters as much as the total amount
- How “what if” planning helps you prepare for uncertainty
Why cash matters
Cash is the money that flows into your bank account and the money that flows out. It is what pays the bills, wages, suppliers, rent, utilities, loan repayments, tax, and your own reward from the business.
A business can make sales and show a profit on paper, but still struggle if the cash does not arrive in time. That is why we need to pay close attention to what is actually happening in the bank.
There is a saying worth remembering: sales are vanity, profit is reality, and cash is sanity. If you want more context on this difference, our episode on How different is cash to profits? is a useful follow-on.
“Cash is the lifeblood of any business.”
What is a cash flow forecast?
A cash flow forecast is a forward-looking view of your business cash. It helps you estimate what money is likely to come in, what money is likely to go out, and what your bank balance may look like over the next few months.
Ideally, we want to look ahead for 12 months. If that feels too much, a three to six-month forecast is still much better than doing nothing.
The forecast is not about pretending we can predict the future perfectly. It is about using the best information we have, building a clear cash story, and giving ourselves time to act before pressure builds.
Start with your cash story
All forecasts start with a story. Before we open a spreadsheet or write down numbers, we need to think about what is likely to happen in the business.
Are sales expected to grow? Are costs rising? Are we investing in equipment? Are we taking on staff? Are we tightening the belt? Are customers likely to pay late? Are grants, loans, or one-off receipts expected?
That story then needs to be translated into numbers. This is where the three building blocks come in.
The three building blocks: what, when and how much
1. What is likely to happen?
The first question is what. What income do we expect? What bills do we need to pay? What loans, wages, supplier costs, freelancer fees, utilities, tax payments, or equipment purchases are coming up?
If it affects cash, it needs to be included.
2. When will it happen?
The second question is when. Timing is critical in cash flow. A sale made in September may not produce cash until October if the customer has 30 days to pay.
The same applies to costs. Supplier bills, wages, freelancer invoices, direct debits, loan repayments, and utility costs may all leave the bank at different times.
3. How much is involved?
The third question is how much. We need to attach a number to the activity.
For example, if we sell 100 products at £10 each, that gives us £1,000 of income. But if customers pay 30 days later, the cash may not arrive until the following month.
That combination of what, when, and how much turns activity into a cash forecast.
Forecasting money coming in
Money coming in usually starts with sales to customers or clients. For some organisations, it may also include loans, grants, donations, funding, asset sales, or other receipts.
The key is to put the cash into the month when it is actually expected to hit the bank account, not necessarily the month when the sale is made or the work is done.
This is where credit terms matter. If we allow customers 30 days to pay, the income may belong to one month, but the cash may arrive in the next.
Forecasting money going out
Money going out includes anything that leaves the bank account. That could include suppliers, staff wages, freelancer bills, utilities, rent, loan repayments, tax, subscriptions, equipment, materials, and one-off purchases.
Again, timing matters. Staff may be paid in the same month they work. Supplier bills may be paid later. Direct debits may leave on fixed dates. Equipment may require a large one-off cash payment.
Some costs are fixed, meaning they remain fairly steady regardless of sales. Others vary with activity. If you sell more products, you may need more materials. If your sales fall, some costs may still continue.
Surpluses, deficits and your cash cushion
Once we map cash coming in and cash going out, we can see whether each month creates a surplus or a deficit.
A surplus means more cash is coming in than going out. A deficit means more cash is leaving than arriving. The opening bank balance then tells us whether we have enough cushion to absorb that movement.
This is where the forecast becomes useful. It shows us the months that may feel tight before they arrive. It also shows when cash may build up, giving us more room to invest, reward ourselves, or move forward with growth plans.
If you want to build this in a practical model, our episode on Build Your Cash Flow with a Spreadsheet: Create a Practical Forecast gives a useful next step.
Do not edit the story too early
When we start building a cash flow forecast, it can be tempting to edit the story as we go. We may avoid putting in difficult costs, delay uncomfortable assumptions, or make the numbers look better than reality.
That defeats the purpose.
The forecast needs to reflect the best view of what is actually happening. If the business needs investment, put it in. If the market is volatile, reflect that. If costs are rising, include them. If sales may be delayed, show that clearly.
The forecast is there to tell the truth early enough for us to act.
Use what-if planning
A good cash flow forecast becomes even more powerful when we use “what if” planning.
What if sales fall by 20%? What if costs rise by 5%? What if expected sales arrive two months later? What if a customer pays late? What if a large supplier bill lands earlier than expected?
These questions help us test the strength of the business. They also move us from reacting to problems towards managing the business proactively.
What to do with the forecast
A cash flow forecast is not just a document to file away. It should help us make decisions.
If the forecast shows pressure points, we can look at what action is available. Can we challenge costs? Can we defer spending? Can we renegotiate timings? Can we look at alternative suppliers? Can we bring cash in faster? Can we build a stronger reserve?
This is not about cutting everything. It is about understanding where the pressure sits and what choices we have before the pressure becomes urgent.
Practical steps to take
- Start with your business story for the next three to twelve months
- List the cash you expect to come in
- List the cash you expect to go out
- Use what, when, and how much for each item
- Put cash into the month it actually enters or leaves the bank
- Separate fixed costs from costs that change with sales
- Calculate monthly surpluses and deficits
- Check your opening and closing bank balance each month
- Run what-if scenarios for falling sales, rising costs, or delayed income
- Review and update the forecast regularly
Related episodes
- Build Your Cash Flow with a Spreadsheet: Create a Practical Forecast
- Six steps to managing your cashflow
- Cash Flow Management Tips : 5 Essential Tips
Key takeaway
A cash flow forecast helps us see the reality of what may happen in the business. It shows what cash comes in, what cash goes out, when it happens, and whether the business has enough cushion to cope.
No cash, no business. Build the forecast, test the assumptions, update it regularly, and use it to make better decisions. Plan it, Do it, Profit.
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Episode Timecodes
- 00:00 – Why cash matters for business survival
- 01:00 – Cash as the lifeblood of the business
- 02:00 – Starting a cash flow forecast with your business story
- 03:00 – Forecasting money coming into the business
- 04:00 – Forecasting money leaving the business
- 05:00 – Timing, supplier bills, wages, and direct debits
- 06:00 – Fixed costs, variable costs, surpluses, and deficits
- 07:00 – Building a realistic cash story
- 08:00 – What-if planning and contingency thinking
- 09:00 – Using the forecast to manage pressure points
- 10:00 – Why numbers tell the truth in uncertain times
- 11:00 – Summary and final cash flow advice
About the Podcast
The I Hate Numbers podcast helps business owners understand accounting, tax, finance, profit, cash flow, and business planning in a practical way. We simplify financial topics so you can make better decisions and feel more confident with your numbers.
You can also watch more practical finance and tax support on the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.
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