Profit on paper does not pay the suppliers. Cash flow forecasting shows when money is coming in and going out, so a shortage is visible weeks or months before it happens.
What it is
An estimate of the cash entering and leaving a business over a set period. It supports decisions on funding, investment and capital spending, shows the expected cash position, helps earn a return on surplus cash and helps prevent shortages.
Time horizons
- Short term: about 30 days, to spot cash needs or surpluses.
- Medium term: one month to one year.
- Long term: one to five years or more.
1. Be data-driven
Use actual transaction data rather than guesses. The goal is not a perfect forecast. A perfect forecast is almost impossible, and a slightly less accurate one can lead to the same decision with far less effort. Spend the time on what the data says.
2. Forecast 13 weeks ahead
Accuracy falls the further ahead you look, and 13 weeks balances reliable near-term data with useful visibility. It:
- reveals a shortage early enough to arrange funding or intercompany support
- supports short-term decisions such as investments and debt repayment
- shows banks and investors that you control your cash
3. Automate the data collection
Spreadsheets are common, but manual collection and re-keying cause errors and use time that should go on analysis. Pull data directly from your bank feeds or accounting system so the forecast is faster and more reliable. See our technology and systems services.
4. Use a rolling forecast
Each week or month, drop the period just ended and add a new one at the far end, so you always look the same distance ahead. A static forecast cannot absorb a mid-period change, such as a sudden drop in demand, until the next cycle. A rolling forecast keeps the picture current and improves the timing of spending and financing.
A simple starting point
List opening cash, expected receipts by week, expected payments by week and closing cash. Update it weekly, compare it with actual results and learn why it was wrong.
Related: reducing operating costs and the importance of bookkeeping.
Key takeaways
- A 13-week rolling forecast suits most small and mid-sized businesses.
- Use real data and automate where possible.
- Review forecast versus actual every week.
Frequently asked questions
How often should I update it?
Weekly for a 13-week forecast.
Is it the same as a budget?
No. A budget is a plan for the year; a forecast is a regularly updated estimate of cash.
Talk to a chartered accountant
Questions about your own situation? Reach us directly and we will reply with clear next steps.
This article is general information and not advice for your specific circumstances. Rules and thresholds change, so confirm the current position before you act.
