What Is a Cash Flow Forecast?
A cash flow forecast predicts when money will flow in and out of your business. The most important tool for avoiding insolvency.
Key Takeaways
- A cash flow forecast predicts cash in and cash out week by week
- Profitable businesses can still run out of cash — this is why forecasting matters
- A 13-week rolling cash flow forecast is the standard operational tool
- The forecast reveals cash gaps in advance — giving you time to act
Why profitable businesses go bust
A profitable business can run out of cash and become insolvent. Profit is an accounting concept. Cash is a physical reality. If you invoice £200,000 in December but none is paid until February, December's P&L shows strong profit but your January bank account may be dangerously low. A cash flow forecast tracks the timing of real money movements.
What a cash flow forecast contains
It lists expected cash inflows — customer payments, tax refunds, loan drawdowns — and expected cash outflows — supplier payments, payroll, rent, VAT — week by week. The closing balance at the end of each period becomes the opening balance of the next. Any period where the closing balance goes negative is a cash gap you must plan for.
The 13-week rolling forecast
The industry standard is a 13-week rolling cash flow forecast — roughly one quarter ahead. It is specific enough to be actionable and far enough ahead to give you time to respond. Each week, add a new week to the end and update near-term weeks with actuals, keeping the window always 13 weeks forward.
Identifying and closing gaps
When the forecast reveals a cash gap, you have time to act: accelerate customer collections, delay supplier payments within agreed terms, draw on a credit facility, or defer non-essential expenditure. The earlier you spot the gap, the more options you have.
Cash forecast vs P&L forecast
The P&L forecast asks: will we be profitable this year? The cash flow forecast asks: will we have enough cash to pay our bills next month? For day-to-day management, the cash flow forecast is more urgent. Run both side by side and reconcile the differences regularly.