A cash flow forecast helps you see what money is coming into your business, what money is going out, when it happens, and whether your bank balance can cope.

About this episode

Cash keeps a business alive. Sales matter. Profit matters. But if there is not enough cash in the bank to pay bills, wages, loans, suppliers, tax, and day-to-day costs, the business can quickly run into trouble. In this episode, we look at how to build a cash flow forecast using three simple building blocks: what, when, and how much. These three questions help turn your business story into a practical cash forecast. We also look at money coming in, money going out, timing differences, credit terms, regular costs, variable costs, surpluses, deficits, and how “what if” planning helps you manage risk before problems hit the bank account.

What you’ll learn in this episode

• Why cash is vital for business survival
• Why profitable businesses can still fail if cash is poorly managed
• How a cash flow forecast helps you plan ahead
• Why every forecast starts with a business story
• How to use what, when, and how much in your forecast
• How to map money coming in and money going out
• Why timing matters as much as the total amount
• How “what if” planning helps you prepare for uncertainty

Why cash matters

Cash is the money that flows into your bank account and the money that flows out. It is what pays the bills, wages, suppliers, rent, utilities, loan repayments, tax, and your own reward from the business. A business can make sales and show a profit on paper, but still struggle if the cash does not arrive in time. That is why we need to pay close attention to what is actually happening in the bank. There is a saying worth remembering: sales are vanity, profit is reality, and cash is sanity. If you want more context on this difference, our episode on How different is cash to profits? is a useful follow-on.

“Cash is the lifeblood of any business.”

What is a cash flow forecast?

A cash flow forecast is a forward-looking view of your business cash. It helps you estimate what money is likely to come in, what money is likely to go out, and what your bank balance may look like over the next few months. Ideally, we want to look ahead for 12 months. If that feels too much, a three to six-month forecast is still much better than doing nothing. The forecast is not about pretending we can predict the future perfectly. It is about using the best information we have, building a clear cash story, and giving ourselves time to act before pressure builds.

Start with your cash story

All forecasts start with a story. Before we open a spreadsheet or write down numbers, we need to think about what is likely to happen in the business. Are sales expected to grow? Are costs rising? Are we investing in equipment? Are we taking on staff? Are we tightening the belt? Are customers likely to pay late? Are grants, loans, or one-off receipts expected? That story then needs to be translated into numbers. This is where the three building blocks come in.

The three building blocks: what, when and how much

1. What is likely to happen?

The first question is what. What income do we expect? What bills do we need to pay? What loans, wages, supplier costs, freelancer fees, utilities, tax payments, or equipment purchases are coming up? If it affects cash, it needs to be included.

2. When will it happen?

The second question is when. Timing is critical in cash flow. A sale made in September may not produce cash until October if the customer has 30 days to pay. The same applies to costs. Supplier bills, wages, freelancer invoices, direct debits, loan repayments, and utility costs may all leave the bank at different times.

3. How much is involved?

The third question is how much. We need to attach a number to the activity. For example, if we sell 100 products at £10 each, that gives us £1,000 of income. But if customers pay 30 days later, the cash may not arrive until the following month. That combination of what, when, and how much turns activity into a cash forecast.

Forecasting money coming in

Money coming in usually starts with sales to customers or clients. For some organisations, it may also include loans, grants, donations, funding, asset sales, or other receipts. The key is to put the cash into the month when it is actually expected to hit the bank account, not necessarily the month when the sale is made or the work is done. This is where credit terms matter. If we allow customers 30 days to pay, the income may belong to one month, but the cash may arrive in the next.

Forecasting money going out

Money going out includes anything that leaves the bank account. That could include suppliers, staff wages, freelancer bills, utilities, rent, loan repayments, tax, subscriptions, equipment, materials, and one-off purchases. Again, timing matters. Staff may be paid in the same month they work. Supplier bills may be paid later. Direct debits may leave on fixed dates. Equipment may require a large one-off cash payment. Some costs are fixed, meaning they remain fairly steady regardless of sales. Others vary with activity. If you sell more products, you may need more materials. If your sales fall, some costs may still continue.

Surpluses, deficits and your cash cushion

Once we map cash coming in and cash going out, we can see whether each month creates a surplus or a deficit. A surplus means more cash is coming in than going out. A deficit means more cash is leaving than arriving. The opening bank balance then tells us whether we have enough cushion to absorb that movement. This is where the forecast becomes useful. It shows us the months that may feel tight before they arrive. It also shows when cash may build up, giving us more room to invest, reward ourselves, or move forward with growth plans. If you want to build this in a practical model, our episode on Build Your Cash Flow with a Spreadsheet: Create a Practical Forecast gives a useful next step.

Do not edit the story too early

When we start building a cash flow forecast, it can be tempting to edit the story as we go. We may avoid putting in difficult costs, delay uncomfortable assumptions, or make the numbers look better than reality. That defeats the purpose. The forecast needs to reflect the best view of what is actually happening. If the business needs investment, put it in. If the market is volatile, reflect that. If costs are rising, include them. If sales may be delayed, show that clearly. The forecast is there to tell the truth early enough for us to act.

Use what-if planning

A good cash flow forecast becomes even more powerful when we use “what if” planning. What if sales fall by 20%? What if costs rise by 5%? What if expected sales arrive two months later? What if a customer pays late? What if a large supplier bill lands earlier than expected? These questions help us test the strength of the business. They also move us from reacting to problems towards managing the business proactively.

What to do with the forecast

A cash flow forecast is not just a document to file away. It should help us make decisions. If the forecast shows pressure points, we can look at what action is available. Can we challenge costs? Can we defer spending? Can we renegotiate timings? Can we look at alternative suppliers? Can we bring cash in faster? Can we build a stronger reserve? This is not about cutting everything. It is about understanding where the pressure sits and what choices we have before the pressure becomes urgent.

Practical steps to take

• Start with your business story for the next three to twelve months
• List the cash you expect to come in
• List the cash you expect to go out
• Use what, when, and how much for each item
• Put cash into the month it actually enters or leaves the bank
• Separate fixed costs from costs that change with sales
• Calculate monthly surpluses and deficits
• Check your opening and closing bank balance each month
• Run what-if scenarios for falling sales, rising costs, or delayed income
• Review and update the forecast regularly

Related episodes

• Build Your Cash Flow with a Spreadsheet: Create a Practical Forecast
• Six steps to managing your cashflow
• Cash Flow Management Tips : 5 Essential Tips

Key takeaway

A cash flow forecast helps us see the reality of what may happen in the business. It shows what cash comes in, what cash goes out, when it happens, and whether the business has enough cushion to cope. No cash, no business. Build the forecast, test the assumptions, update it regularly, and use it to make better decisions. Plan it, Do it, Profit.

Share this episode

Share this episode: Listen on Apple Podcasts 🎧 Enjoyed this episode? Subscribe and leave a review on Apple Podcasts — it helps more business owners manage cash flow, understand finance, and feel more confident with their numbers.

Episode Timecodes

• 00:00 – Why cash matters for business survival
• 01:00 – Cash as the lifeblood of the business
• 02:00 – Starting a cash flow forecast with your business story
• 03:00 – Forecasting money coming into the business
• 04:00 – Forecasting money leaving the business
• 05:00 – Timing, supplier bills, wages, and direct debits
• 06:00 – Fixed costs, variable costs, surpluses, and deficits
• 07:00 – Building a realistic cash story
• 08:00 – What-if planning and contingency thinking
• 09:00 – Using the forecast to manage pressure points
• 10:00 – Why numbers tell the truth in uncertain times
• 11:00 – Summary and final cash flow advice

About the Podcast

The I Hate Numbers podcast helps business owners understand accounting, tax, finance, profit, cash flow, and business planning in a practical way. We simplify financial topics so you can make better decisions and feel more confident with your numbers. You can also watch more practical finance and tax support on the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.

Further Support

📘 Book https://www.ihatenumbers.co.uk/i-hate-numbers-book/ 🎧 Podcast https://www.ihatenumbers.co.uk/i-hate-numbers-podcast/ 🌐 Website https://www.ihatenumbers.co.uk

:: 00:00

Good cash flow management is vital, nay critical, to the success of your business. In fact, it's a stated truth that if your business does not have access to cash resources, does not have access to the ability to manage cash flow correctly, then survival is going to be seriously questioned. You can survive without making profits for a period of time, but you can't survive without access to cash.

:: 00:27

So it's vital that as a business owner, as somebody who runs a business, cash flow, though it may feel like the headache and pain of your life, it's an absolute necessity. And in this week's podcast, I've got seven strategies to make this process easier and to ensure that your business stays on track for financial success.

:: 00:46

Let's dive into it.

:: 00:53

Number one, create a cash reserve. It's always a good idea to have a safety net in place. A cash reserve is going to help you to cover unforeseen costs, keep your business afloat. Should there be any change in activity, should the outlook be bleak, should disaster strike, you're going to be covered. As a rule of thumb, and this is something that I borrow from the not-for-profit from the arts and creative sector, three to six months of operating costs of average cash flow is a good buffer to have.

:: 01:24

Think about if your business stood still and no more customers bought from you, how much money would you need to keep ticking over for the next three to six months, and that's your aspirational target. Number two, cost consciousness or frugality if you prefer. Now, every business owner knows it can be difficult to find a balance between growth and cautious spending.

:: 01:46

However, it's important to develop a minimum viable budget, yeah, I use that word budget, and continue to stick to it even when cash is flowing into your business. Having that sense of financial discipline is really an important thing to adopt. Good times don't always last forever, and if you're unable to save money when the going is good, it's going to be pretty tough to do that when times get tougher.

:: 02:10

Number three, if you're a product-based business, keep an eye on your inventory. Managing your inventory poorly will create a lot of expensive problems, which will impact severely on your cash flow. It costs money to acquire the inventory, that's money tied up. It costs you money to hold inventory, and it costs you money to manage inventory.

:: 02:31

So we need to make sure that our balance of how much inventory we need to fulfil demand, not overstocking, not having obsolete inventory items that we're carrying, that's dead money, effectively, until it's sold. We need to make sure that balance is correct. Now, when you don't organise your inventory correctly, there may be items you misplace, that aren't stored correctly, they become obsolete or damaged, and we might end up ordering replacements that we don't actually need.

:: 02:57

The next thing to consider is about leasing your equipment. Now, some business owners prefer to purchase assets outright and to own them, and purchasing equipment in its own right might prove to be more effective and cheaper in the long term, and it may have an impact on profitability, but it also might damage your cash reserves in the short term.

:: 03:17

Investing, buying expensive upgrades can present a real problem when funds are tight. Now, leasing, again, on one respect might be more expensive, however, it's going to free up cash flow. It's going to be less cash commitment, less cash outflow going out of your bank, and it helps you to monitor and regulate your cash flow more easily.

:: 03:37

In a lot of leasing, hire purchase arrangements here, you may have the option to purchase the equipment outright at the end of the term of the agreement or to even upgrade. Number five, equipment loans. Now, instead of purchasing outright, you might want to consider something called an equipment loan, and this type of loan functions in much the same way as a traditional bank loan, but the risk profile is lower.

:: 04:02

The market is there for you to have a shop around and have a look at those options about how you finance and fund that equipment. And again, an equipment loan may be something that is going to be more suitable for your business type. Now, this might seem like contradictory terms, but the next thing to consider is you borrow when the going is good.

:: 04:20

Now prevention's always going to be better than the cure, so borrowing money when your finances are looking good may actually prove to be a good thing for you. Better to open a line of credit now and to be able to use it later than risk rejection from the bank when you're already in peril. In addition to this, seeking a loan when your business is in good financial health gets you better rates, and it gives you the freedom to shop around.

:: 04:44

Now, the last one, and I'm going to give you a bonus at the end, is to hire a good accountant. Now cash flow problems often sneak up on business owners. They shouldn't do, and it definitely pays to have a professional on sight who can spot problems from a mile off and give you solutions before your business starts to suffer.

:: 05:01

In my own practice, I Hate Numbers, and through Numbers Knowhow, we support a number of clients by helping them do forecasting, preparing budgets. Having a look through the windscreen of your business is better than getting caught out by unexpected surprises. Now, good cash flow management, folks, in summary, is about preparing for the worst and maintaining those sensible, yep, sensible financial habits even when the going is good,

:: 05:26

create that cash buffer, that cash reserve, remaining cost-conscious, and keeping on top of your inventory, you can protect yourself against the cash flow problems that cause havoc on many small businesses. It's certainly worth considering borrowing during the good times and considering equipment loans or leases rather than shelling out cash immediately.

:: 05:46

Maintain that healthy cash flow, make sure you've got the accountants advising you and helping you with your forecasting, and making sure your bank balance stays as healthy as it can for years to come.