Running a small business or startup in today’s economy is no easy feat. But by creating a cash flow forecast, you can keep on top of your inflows and outflows, choose when to invest and expand, and bridge any finance gaps before they cause problems.
Despite how crucial forecasting is, one in three SME leaders don’t understand how cash flow works, even though 82% of small businesses are currently facing problems.[1]
We’ll show you how to create a cash flow forecast in five easy steps. You’ll see what to include, why it’s important, best practices for small businesses in the UK, and common mistakes to avoid.
What Is a Cash Flow Forecast?
A cash flow forecast predicts when money will move in and out of your business over a specific period. It tracks the starting balances, inflows, and outflows to help teams anticipate money shortages before they happen.
Forecasting and cash flow projection are often used interchangeably, although “projections” are sometimes used for longer-term estimates or scenario planning. A cash flow statement records past transactions that have already occurred, so you have a financial record of your business’s income and outgoings.
Why Is Forecasting Important?
Forecasting is a crucial part of cash flow management, helping you make informed decisions about the money your business spends and invests. Done right, it will show you exactly when bills are due and how much income you should expect, allowing you to arrange loans or credit long before a financial crisis hits.
As well as helping you forward-plan for negative cash flow (a problem increasingly affecting small businesses in the UK), a cash flow forecast document also allows you to grow as a business, letting you know when you have extra money to spend on new tools or hire additional staff. It also acts as proof of your financial activity when you need loans or finance support.
How to Create a Cash Flow Forecast (Step-by-Step)
Creating a cash flow forecast involves five steps:
Choose your forecast period.
Estimate incoming payments from customers or clients.
List when bills and other expenses are due.
Calculate your running cash balance daily, weekly, or monthly.
Track everything and update it regularly. Simple ways to track your cash flow include creating an Excel spreadsheet or using cash flow management software.
What to Include in Your Cash Flow Forecast
Most small businesses and startups use the direct forecasting model, which tracks the actual cash arriving and leaving your account in real time. Large companies tend to use more complex forecasting models that incorporate working capital assumptions and accounting data.
A direct cash flow forecast usually includes:
Your opening balance: The money already in your business account at the start of the cash flow projection period.
Cash inflows (money coming in): The money you are confident will be received, such as regular client payments. Create another column for projected (but not definite) income, such as signed contracts that have not started yet, deals in your sales pipeline, or overdue payments from clients.
Cash outflows (money going out): Include all your fixed or variable expenses, such as subscriptions, software tools, vendor bills, office rent, staff wages, and petty cash items.
Using these figures, you’ll be able to calculate:
Your net cash flow: The difference between your cash inflows and outflows during a specific period.
Your closing balance: The actual amount of money left in your bank account at the end of the period.
Cash Flow Forecast Example
This basic example shows how you track the inflow and outflow of a business over a period of months.
| January | February | March | |
|---|---|---|---|
| Opening cash balance | £5,000 | £6,500 | £5,050 |
| Cash coming in | |||
| Customer payments | £12,000 | £10,500 | £13,000 |
| Other income | £500 | £750 | £500 |
| Total cash received | £12,500 | £11,250 | £13,500 |
| Cash going out | |||
| Supplier payments | £4,000 | £3,500 | £4,500 |
| Rent and bills | £1,500 | £1,500 | £1,500 |
| Wages and staff costs (inc. NI) | £5,500 | £5,500 | £5,500 |
| Tax (HMRC) | £0 | £2,200 | £0 |
| Total cash paid out | £11,000 | £12,500 | £11,500 |
| Net cash flow | £1,500 | -£1,250 | £2000 |
| Closing cash balance | £6,500 | £5,050 | £7,050 |
What Is a 13-Week Cash Flow Forecast?
Many companies opt for 13-week cash flow forecasts, which span a rolling three-month period. As each week closes, a new week is added to the forecast, making sure the coming weeks and months are always on the horizon.
The 13-week cycle is particularly well-suited to PE-backed and leveraged companies, where lenders and investors often require tighter cash monitoring.
Best Practices for Cash Flow Management
Always base your incoming cash on your clients’ real payment habits. If a client historically pays late, for example, map that money to land a couple of weeks later in your spreadsheet rather than on the invoice due date.
It’s best to separate your guaranteed income from your sales pipeline, leaving unsigned deals out of your forecast completely.
Many founders get too busy and forget to update their cash flow forecast. Make it a habit to update your numbers once a week (or month) by replacing last week’s prediction with your actual bank balances so your model remains accurate.
Don’t forget to plan for large, irregular expenses, and don’t assume every month will look the same. Remember to include quarterly VAT bills, annual insurance, software renewals and other irregular outgoings in the months they will actually leave your account. You can bundle smaller categories together, such as subscriptions or bills, to keep your spreadsheet clean and readable.
Common Mistakes to Avoid
The biggest trap for B2B companies is to assume everything runs smoothly all the time: every customer pays when they should, nothing breaks, no one gets sick or has to take paid leave—but this is rarely the reality. Make sure your business has a cushion for unexpected costs.
Another common mistake is forgetting to roll your numbers forward correctly from one period to the next. If your month one balance doesn’t perfectly match your month two opening balance, your entire forecast will be off, so keep it up to date.
Managing Your Cash Flow: More Than Just Forecasting
An effective cash flow spreadsheet will help you spot potential shortfalls before they happen, but forecasting alone won’t solve every cash flow problem.
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Cash Flow Forecasting FAQs
How often should I update a cash flow forecast?
You should update your cash flow at least monthly, although weekly updates are best if cash is tight or your business is growing fast.
What’s the difference between a cash flow forecast and a budget?
A budget acts as a target to measure business performance, whereas a cash flow forecast predicts liquidity and preempts cash flow issues.
How far ahead should you forecast?
Most small businesses run a 13-week rolling view for cash flow forecasting, allowing them to track payroll, upcoming bills, and projected income.
What is a good cash flow position?
A good cash flow position is having more money coming in than going out, with enough cash on hand to cover shortfalls and emergencies.
References
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[1] CICM, “One in three SME leaders do not fully understand cash flow, despite 82% facing cash flow problems.” Retrieved 2026 from: https://www.cicm.com/resource/one-in-three-sme-leaders-do-not-fully-understand-cash-flow-despite-82-facing-cash-flow-problems.html
