What a cash flow forecast shows
A cash forecast estimates receipts, payments and available cash over a defined period. It focuses on when money moves, which can differ substantially from when revenue and expenses appear in the accounts.
The starting balance must be reliable. Reconcile bank accounts and identify restricted funds or other amounts that are not freely available before projecting the next period.
Practice 1: use evidence-based assumptions
Build receipts from customer balances, agreed terms and actual payment behaviour. Build payments from payroll, suppliers, commitments and known obligations. Separate confirmed items from estimates and identify who owns each assumption.
A sales target is not the same as an expected cash receipt. Show the delay between order, delivery, invoice and collection where relevant.
Practice 2: choose a useful horizon
A rolling 13-week view can be useful for near-term liquidity planning, but it is not a universal requirement or a guarantee of accuracy. Choose the frequency and horizon that fit the business's cash cycle and decisions.
Use more detail where evidence is stronger and explain uncertainty further out. Longer-term funding or investment decisions may need a separate forecast linked to the broader business plan.
Practice 3: control data collection
- Reconcile the opening cash balance.
- Agree consistent categories and cut-off dates.
- Assign a responsible person for each input.
- Check for missing items and double counting.
- Keep versions and approval records.
Automation can reduce repeated work, but the output still needs review. A connection to the accounting system does not automatically capture every future commitment or correct a wrongly coded transaction.
Practice 4: roll forward and learn
Compare forecast movements with actual receipts and payments. Explain the significant differences and update the underlying assumptions. Add the next period rather than letting the forecast expire.
Track the lowest projected cash balance and the actions needed before that point. Consider a downside scenario involving slower collections or unexpected costs and assign an owner to each response.
Is profit enough to assess liquidity?
No. Inventory, debtor balances, capital spending, debt payments and tax timing can create a different cash picture. Review both profitability and cash availability.
