Cash flow forecasting: planning the next few months for your business

A cash flow forecast answers a very simple question: will we have enough money available at the right time? For a business, this tool can be more useful than a lengthy annual budget when the coming weeks need to be managed precisely.

The principle is simple: start with available cash, add expected receipts, subtract planned payments and observe how the balance changes. Its value comes mainly from disciplined updates and the quality of assumptions.

Why prepare a cash flow forecast?

The current bank balance does not show what happens next. A large invoice may be due Friday, a tax remittance may be scheduled the following week and several customers may pay later than expected.

A forecast helps you see these movements before they hit the bank account. It can help you:

• identify a period when cash may be tight;
• plan major payments;
• accelerate receivables follow-up when needed;
• test the impact of a hire or investment;
• prepare a discussion with a financial institution earlier;
• avoid making a decision solely from today’s bank balance.

What forecast horizon should you use?

There is no single ideal horizon. For many businesses, a 12- to 13-week view looks far enough ahead to anticipate problems while remaining close enough for useful estimates.

A very stable business may also use a monthly view over 6 to 12 months. Conversely, a business with tight cash flow, strong seasonality or irregular receipts may prefer a detailed weekly update.

The 4 building blocks of a simple forecast

1. The opening balance

Start with the cash actually available at the beginning of the period. If some bank accounts are reserved for a specific use, document that reality rather than blindly adding everything together.

2. Expected receipts

Add likely cash inflows: customer payments, cash sales, confirmed grants, expected refunds and other known receipts.

Use realistic assumptions for receivables. An invoice due in 15 days will not necessarily be collected on that date if your history shows a delay of 30 or 45 days instead.

3. Expected disbursements

List major outflows: suppliers, payroll, rent, credit cards, taxes, source deductions, loan repayments, insurance, software, equipment purchases and other commitments.

Less frequent payments often cause surprises. Think of annual taxes, insurance, licence renewals, instalments, bonuses or one-time work.

4. The closing balance

The basic calculation is: opening balance + receipts – disbursements = closing balance. One period’s closing balance then becomes the next period’s opening balance.

Simplified four-week example

Week	Opening balance	Receipts	Payments	Closing balance
1	$25,000	$18,000	$15,000	$28,000
2	$28,000	$12,000	$22,000	$18,000
3	$18,000	$9,000	$20,000	$7,000
4	$7,000	$24,000	$14,000	$17,000

In this example, the business does not run out of money over the whole month, but the third week becomes much tighter. This information may justify earlier follow-up on certain invoices or postponing a non-urgent purchase.

Add scenarios instead of pretending to know the future

A forecast is not a promise. It relies on assumptions. For uncertain items, creating two or three scenarios is often more useful than trying to obtain a “perfect” figure.

• Base scenario: the most likely receipts and expenses.
• Conservative scenario: some customers pay later or sales are lower.
• Favourable scenario: sales or receipts exceed the base assumption.

The conservative scenario is particularly useful for checking whether the business has a sufficient safety margin.

The most common mistakes

• Using invoice dates as collection dates. Base your assumptions on actual customer behaviour instead.
• Forgetting taxes and government remittances.
• Ignoring principal repayments on loans.
• Forgetting annual or quarterly expenses.
• Never comparing the forecast with actual results. Without this comparison, assumptions do not improve.
• Building an overly complex model. A simple forecast that is kept up to date is better than a sophisticated file abandoned after two weeks.

Excel, QuickBooks or Power BI?

For a small business, Excel can be an excellent starting point. Accounting data may come from QuickBooks Online, while cash flow assumptions are adjusted in a simple model. As the process matures, Power Query or Power BI can reduce manual work and make monitoring easier.

The recommended order is always the same: simplify, standardize, automate. Automating a poor forecast does not make it more reliable.

How often should you update the forecast?

For a 13-week forecast, weekly updates are often appropriate. The process involves replacing estimates for the completed week with actual results, adding a new week at the end of the horizon and adjusting known assumptions.

A more stable business may choose a monthly frequency. The right rhythm is one that allows a decision to be made before the problem has already occurred.

To better understand why a business can be profitable while facing cash pressure, also read Profit ≠ cash: why a profitable business can run out of money.

From forecast to decision

A cash flow forecast is useful only if it leads to action: following up on an invoice, postponing an expense, reviewing a payment schedule, preparing financing or confirming that an investment can be absorbed.

In the Numérix Financial Management plan, cash flow is monitored alongside budgets, indicators and monthly analysis so the owner can connect cash movements to the business’s overall performance.