IN THIS ARTICLE
Growth can increase the number and timing of payments a business must manage. A cash flow forecast provides a structured way to set out expected receipts and payments, review assumptions and prepare for upcoming decisions. This guide explains a practical process for building and maintaining one.
| Forecast component | What to record | Why it matters |
|---|---|---|
| Opening cash position | Cash available at the start of the chosen period | Provides the starting point for expected cash movement. |
| Expected cash inflows | Expected customer receipts and other anticipated incoming cash, with expected dates | Shows when cash may become available. |
| Expected cash outflows | Planned payments and operating costs, with expected payment dates | Shows when cash is expected to leave the business. |
| Assumptions and scenarios | Key timing or amount assumptions, plus alternative views where uncertainty exists | Makes uncertainty visible for review and planning. |
| Actual results | Cash received and paid compared with the forecast | Supports updates to future periods based on current information. |
Start with the purpose of the forecast
A cash flow forecast is a working view of expected cash entering and leaving the business over a chosen period. It is different from a profit and loss report: a business can record revenue before it receives payment, while cash flow focuses on when money is actually expected to move. For a growing business, the forecast can help owners and managers plan around upcoming commitments, customer payment timing and changing operating costs.
Choose a time frame that supports decisions
Use a time frame that makes the forecast practical to review and update. A shorter view can help with near-term payment planning, while a longer view can support broader planning for growth, hiring, stock, equipment or other commitments. The most useful format is one that the business can maintain consistently and compare with actual cash movements.
Record expected cash inflows
List expected receipts based on invoices, sales records, contracts or other information available to the business. Enter expected receipt dates rather than relying only on the date a sale was made. It can also be useful to separate receipts by customer, revenue source or payment type so that late or uncertain payments are easier to identify and discuss.
Map outgoing cash by timing
Add expected payments such as payroll, supplier invoices, rent, tax-related payments, debt repayments and regular operating costs where applicable. The focus should be on the timing and amount of payment, including items that may be irregular or seasonal. Keep assumptions visible so they can be reviewed when plans, payment terms or costs change.
Compare the forecast with actual results
A forecast is more useful when it is reviewed regularly. Compare expected receipts and payments with what actually happened, then update future periods to reflect new information. Differences may point to late customer payments, unexpected costs, changes in sales timing or assumptions that need adjustment. (Source: Why Bother with Financial Forecasts – Small Business Administration) This review process helps keep the forecast grounded in current business activity.
Use scenarios for uncertainty
Where timing or amounts are uncertain, consider preparing more than one view. For example, a base case can reflect current expectations, while a cautious case can allow for delayed receipts or higher-than-expected outgoings. Scenarios do not predict the future; they make assumptions clearer and help decision-makers consider how different outcomes could affect available cash.
Keep the forecast connected to business decisions
Cash flow forecasting should be part of an ongoing planning process rather than a one-off spreadsheet exercise. Before taking on a new commitment, consider when cash will be paid out, when related income may be received and whether the forecast has been updated for the change. Businesses should seek appropriate professional advice for decisions involving financing, tax obligations or other financial commitments.
Get support with the process
A&W Financier can discuss your needs and the practical information required to build or review a cash flow forecasting process. Contact A&W Financier to discuss your needs.
PUT IT INTO PRACTICE
Your next steps
- Select a forecast period and review schedule that the business can maintain.
- Record the opening cash position for the first forecast period.
- List expected receipts with estimated dates and note uncertain items.
- List expected payments with due dates, including regular and irregular costs.
- Document key assumptions and prepare alternative scenarios where appropriate.
- Compare the forecast with actual cash movements and update future periods regularly.
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