Cash flow forecast

A projection of cash coming in and going out, period by period, to show the cash balance ahead.

DefinitionA projection of cash coming in and going out, period by period, to show the cash balance ahead.

A cash flow forecast projects the cash a business expects to receive and pay over the coming weeks or months, and the balance that results. Unlike a profit forecast, it follows when money actually moves: when customers pay, when payroll runs, when suppliers and taxes fall due. Its job is to show a shortfall early enough to act on it.

How it is computed

Closing cash = opening cash + expected receipts − expected payments, rolled forward period by period, with each closing balance becoming the next opening balance.

Example

A month opens with $200,000 of cash. Expected customer receipts are $450,000 and payments for payroll, rent and suppliers are $520,000. Closing cash is $200,000 + $450,000 − $520,000 = $130,000, and that becomes next month's opening balance.

Where it goes wrong

Forecasting receipts from invoice dates instead of when customers actually pay, which makes cash look better than it will be. A forecast that is never compared with actual cash also never improves. The full guide is cash flow forecast.

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