How to Build a Simple Cash Flow Forecast for Your Business
- Jun 26
- 5 min read
Many business owners know how much profit they are making, but still find themselves worrying about whether there will be enough money in the bank to pay bills next month.
This is where a cash flow forecast becomes valuable.
At DUO Accountants, we often speak to sole traders, small business owners, and landlords who only look at their bank balance when making financial decisions. While your bank balance tells you where you are today, a cash flow forecast helps you see where your finances are heading.
The good news is that building a basic cash flow forecast does not have to be complicated. Even a simple spreadsheet can help you identify potential cash shortages before they become a problem.
What Is a Cash Flow Forecast?
A cash flow forecast is a projection of the money you expect to come into and go out of your business over a future period, usually the next 3, 6, or 12 months.
It helps you answer important questions such as:
Will I have enough cash to pay suppliers?
Can I afford to hire staff?
When will I need to pay my tax bill?
Will seasonal changes affect my cash position?
Can I invest in new equipment or property?
A cash flow forecast focuses on actual cash movement, not profit. This distinction is important because a profitable business can still run into cash flow problems if customers pay late or large expenses arise unexpectedly.
Why Is Cash Flow Forecasting Important?
A cash flow forecast helps you:
Avoid Cash Shortages
You can spot periods where money may be tight and take action early rather than waiting until bills are due.
Plan for Tax Payments
Many sole traders and landlords are caught off guard by Self Assessment tax bills. Forecasting allows you to set aside money throughout the year.
Make Better Business Decisions
Knowing your future cash position helps you decide whether to:
Take on new staff
Purchase equipment
Expand operations
Invest in marketing
Gain Confidence
Rather than guessing, you'll have a clearer picture of what your business finances may look like over the coming months.
What Should Be Included in a Cash Flow Forecast?
A basic cash flow forecast contains three key sections:
1. Opening Bank Balance
This is the amount currently available in your business bank account at the start of the forecast period.
For example:
Opening balance for July: £5,000
2. Cash Coming In (Income)
Include all money you expect to receive.
Examples include:
For Sole Traders and Small Businesses
Sales income
Customer payments
Retainer fees
Grants
Business loans
VAT refunds
For Landlords
Rental income
Deposit deductions retained
Insurance claim payments
Other property-related income
Remember to record income when you expect to receive the money, not when you issue an invoice. This is particularly important for businesses using the cash basis accounting method.
3. Cash Going Out (Expenses)
List all expected payments. Common examples include:
Rent
Utilities
Wages
Subcontractors
Stock purchases
Marketing costs
Software subscriptions
Insurance
Loan repayments
Vehicle costs
Professional fees
Tax payments
Mortgage payments on rental properties
Property maintenance and repairs
The more realistic your expense estimates are, the more useful your forecast will be.
How to Create Your Cash Flow Forecast Step-by-Step
Step 1: Choose Your Time Frame
Decide whether you want to forecast weekly or monthly. Weekly forecasts give more detail but take more time. Monthly forecasts are easier and often enough for small businesses.
Step 2: Gather Your Data
Look at your bank statements, invoices, bills, and contracts. Use this information to estimate your expected cash inflows and outflows for each period.
Step 3: Set Up a Simple Spreadsheet
Create columns for each week or month and rows for each cash flow item. You can use free templates available online or build your own in Excel or Google Sheets.
Step 4: Enter Your Opening Balance
Start with the cash you have in your business bank account at the beginning of the forecast period.
Step 5: Add Expected Cash Inflows
List all expected income for each period. Be realistic and consider seasonal variations or payment delays.
Step 6: Add Expected Cash Outflows
Include all payments you expect to make. Don’t forget regular bills and occasional expenses like tax payments.
Step 7: Calculate Closing Balances
For each period, subtract outflows from inflows and add the result to the opening balance. This shows your expected cash position.
Step 8: Review and Update Regularly
Your forecast is a working document. Update it weekly or monthly with actual figures and revise estimates as needed.
A Simple Cash Flow Forecast Example
Month | July |
Opening Balance | £5,000 |
Sales Income | £4,000 |
Rental Income | £1,000 |
Total Cash In | £5,000 |
Rent & Utilities | (£1,200) |
Staff Costs | (£1,500) |
Marketing | (£300) |
Tax Savings | (£500) |
Other Expenses | (£700) |
Total Cash Out | (£4,200) |
Net Cash Movement | £800 |
Closing Balance | £5,800 |
The closing balance then becomes the opening balance for the following month. Repeat this process for each month in your forecast period.
How Far Ahead Should You Forecast?
For most businesses, forecasting at least 12 months ahead provides a useful overview of future cash needs. Government business guidance also recommends forecasting over the next 12 months to help identify periods of surplus or shortage.
If your cash flow changes frequently, consider updating your forecast monthly or even weekly. Regular updates make forecasts more accurate and useful.
Common Mistakes to Avoid
Being Too Optimistic About Income
Many business owners assume invoices will be paid immediately. Instead, base your forecast on realistic payment patterns. If customers usually pay after 30 days, build that delay into your forecast.
Forgetting Annual Costs
Some expenses only appear once a year, such as:
Insurance renewals
Professional memberships
Software renewals
Tax payments
These can cause unexpected cash shortages if they are not included.
Ignoring Tax Liabilities
Self Assessment, VAT, Corporation Tax, and Capital Gains Tax can create significant cash outflows. Build these into your forecast well before they become due.
Not Updating the Forecast
A forecast should be a living document. Review it regularly and compare your predictions with actual results.
Cash Flow Forecasting Tips for Landlords
Landlords should consider:
Potential void periods
Maintenance and repair costs
Mortgage payments
Service charges
Insurance renewals
Tax liabilities
Many landlords focus solely on rental income and overlook the timing of large property expenses.
A simple forecast helps avoid surprises when major repairs arise.
Tools You Can Use
You do not need expensive software to get started. A simple cash flow forecast can be created using:
Microsoft Excel
Google Sheets
Xero
QuickBooks
Free cash flow templates
The important thing is not the software. It is regularly reviewing and updating the information.
Final Thoughts
Cash flow is often described as the lifeblood of a business. You may be profitable on paper, but if cash is not available when bills need to be paid, problems can quickly arise.
A simple cash flow forecast gives you visibility, confidence, and control over your finances. It helps you plan ahead, prepare for tax payments, and make better business decisions.
Whether you are a sole trader, small business owner, or landlord, taking just a few minutes each month to review your future cash position can make a significant difference to the financial health of your business.
At DUO Accountants, we believe accounting should be straightforward and stress-free. If you need help creating a cash flow forecast or understanding your business finances, our friendly team is always happy to help.
