How to create a Cash Flow Forecast for your business
For many business owners, profit looks good on paper - but the real question is whether there’s enough cash in the bank to keep the business running. That’s where a cash flow forecast becomes essential.
A cash flow forecast is one of the most practical planning tools in business accounting. It helps you understand the money coming into your business, the money going out, and what your bank balance could look like in the weeks and months ahead.
For many businesses, especially during uncertain economic conditions, understanding cash flow is critical. Working with experienced Nelson accountants can help you build a realistic forecast that supports better decision-making and long-term stability.
What is a Cash Flow Forecast?
A cash flow forecast estimates how much cash your business will have available over a set period of time. It projects expected income and expenses so you can see whether your business will have sufficient funds to cover costs.
Unlike a budget - which focuses on expected revenue and expenses - a cash flow forecast focuses on when cash actually enters or leaves your bank account.
For example, if you invoice a customer today but they pay you in 30 days, a budget records the sale immediately. A cash flow forecast shows when the cash actually arrives.
For many business accounting systems, this distinction is crucial.
A well-prepared forecast can help you:
Understand how long your business can operate at current sales levels
Identify potential cash shortages before they happen
Plan for growth, investment, or slower trading periods
Prepare for loan applications or funding requests
We recommend maintaining a rolling cash flow forecast covering at least the next three to six months.
Understanding where your cash is coming from
The first step in building a forecast is identifying your cash inflows.
Start by looking at revenue from sales. Breaking your sales down by product or service line can reveal useful insights into how your business generates cash.
For example, ask yourself:
Does 80% of your revenue come from 20% of your products or services?
Are some products high value but lower volume?
Do different customer markets generate different levels of revenue?
Understanding these patterns helps you identify the true drivers of revenue in your business.
Your forecast should also include other sources of cash such as:
Grants or subsidies
Tax refunds
Investment income
Loan advances
Owner funds introduced into the business
These sources can play an important role in short-term cash flow planning, particularly for businesses managing growth or seasonal income cycles.
Understanding where your cash is going
The next step is mapping out your cash outflows - every cost associated with running your business.
Typical expenses included in a cash flow forecast might include:
Rent or lease payments
Wages and salaries
Materials or supply costs
Electricity and utilities
Loan repayments and bank fees
Insurance
Tax payments
If your business has lending facilities, make sure your forecast includes:
Loan repayment amounts
Interest charges
Repayment holidays or interest-only periods
Capital purchases such as vehicles, equipment, or technology investments should also be included.
Experienced accountants often help businesses map these costs accurately within their business accounting systems to ensure forecasts reflect real-world cash movement.
Fixed costs vs variable costs
Another useful step when preparing a cash flow forecast is identifying which costs are fixed and which costs vary with sales.
Fixed costs are expenses that remain relatively constant regardless of how much you sell, such as:
Rent
Internet
Insurance
Accounting software subscriptions
Variable costs change depending on your level of sales or activity, including:
Freight
Raw materials
Packaging
Subcontractor costs
Understanding this difference helps you scenario plan. If sales decline, some costs will naturally fall too. However, fixed costs will continue regardless of revenue levels.
This visibility allows business owners to make informed decisions about spending, staffing, and operational priorities.
Making better business decisions
A well-prepared cash flow forecast pulls together key financial data from across your business. With everything in one place, it becomes easier to plan ahead and respond to changing conditions.
A cash flow forecast can help you make decisions around:
Hiring or adjusting staffing levels
Purchasing inventory or supplies
Investing in equipment or growth opportunities
Managing slower trading periods
For many businesses, it also becomes an essential document when seeking bank finance or external funding.
Working with experienced Nelson accountants ensures your projections are realistic and based on reliable data from your business accounting systems.
Building a reliable cash flow forecast requires accurate financial information. In many cases, the data will come from a combination of accounting software reports and projected figures.
If you’re unsure which reports to run or how to structure your forecast, professional guidance can make the process far simpler.
At the end of the day, a good forecast isn’t just about numbers - it’s about giving you the confidence to make better decisions for your business.
If you’d like help creating a practical cash flow forecast, talk to experienced Nelson accountants who understand the realities of small business accounting and can help you build a plan that supports smarter financial management.