The short answer
- A cash flow forecast lists, month by month for the next twelve months, the money you expect to come in and go out, and the balance left at the end of each month.
- Every amount goes in the month the money actually moves, not the month you send or receive the invoice. A wholesale order invoiced in October on 60-day terms is December cash.
- The number to watch is the closing balance. If any month goes below zero, or below the cushion you need, act before it arrives: move a stock order, ask for a deposit, negotiate supplier terms, arrange an overdraft in advance.
- Profit and cash are different things. Seasonal stock, slow-paying customers and quarterly tax bills can make a profitable year feel broke for weeks at a time.
- Once a month, replace the month just gone with real figures and add a new month at the end. A forecast nobody updates is wrong by the second month.
Why profit and cash tell different stories
Your budget forecast tells you whether the business makes money over the year. A cash flow forecast tells you whether there is enough in the account to pay what is due each month. They drift apart for three reasons:
- Seasons. Sales go up and down through the year; rent, insurance and subscriptions do not.
- Payment terms. When a business customer pays 30 or 60 days after the invoice, you have already paid for the materials and your time. Our guide to invoice payment terms covers what you can ask for and what the law allows in the US, UK and EU.
- Stock. You pay for it before you sell it. A big order ahead of your busy season empties the account exactly when sales are still slow. Our guide to inventory management shows how much cash surplus stock ties up.
Taxes add a fourth timing gap. A US sole proprietor who expects to owe $1,000 or more generally pays estimated tax in four instalments during the year; a UK sole trader in Self Assessment may have payments on account due in January and July. Put those payments in the month they leave your account, not the month you earned the money.
What goes in the forecast
| Cash in | Cash out |
|---|---|
| Sales paid on the day (cash, card, bank transfer) | Stock, materials, packaging |
| Customer invoices paid this month | Rent, stall or kitchen fees, utilities, insurance |
| Deposits received | Subscriptions, phone, software, bank and card fees |
| Your own money put in, loans, grants | Tax payments, sales tax or VAT paid over |
| Loan repayments, equipment | |
| What you take out for yourself |
Sales paid on the day (cash, card, bank transfer)
Cash outStock, materials, packaging
Customer invoices paid this month
Cash outRent, stall or kitchen fees, utilities, insurance
Deposits received
Cash outSubscriptions, phone, software, bank and card fees
Your own money put in, loans, grants
Cash outTax payments, sales tax or VAT paid over
Cash outLoan repayments, equipment
Cash outWhat you take out for yourself
Then three lines of arithmetic:
- Net cash flow = cash in − cash out
- Opening balance = last month’s closing balance
- Closing balance = opening balance + net cash flow
Add the costs that do not come every month: annual insurance, a trade show, a laptop you will need to replace, a quarterly tax instalment. They are the ones that catch people out.
A worked example: a card and gift business in the UK
Priya designs and sells greetings cards and small gifts online, at craft fairs, and wholesale to a few independent shops. She starts the year with £2,500 in her business account. Most of her sales come in November and December, but the Christmas range has to be printed in September and October. Her biggest wholesale order, £2,000, is invoiced in October on 60-day terms and arrives in December. All figures are examples.
| Month | Cash in | Cash out | Net | Closing balance |
|---|---|---|---|---|
| January | 1,200 | 1,500 | −300 | 2,200 |
| February | 1,800 | 1,400 | +400 | 2,600 |
| March | 1,400 | 1,300 | +100 | 2,700 |
| April | 900 | 1,200 | −300 | 2,400 |
| May | 900 | 1,200 | −300 | 2,100 |
| June | 1,000 | 1,300 | −300 | 1,800 |
| July | 800 | 1,100 | −300 | 1,500 |
| August | 900 | 1,600 | −700 | 800 |
| September | 1,500 | 2,400 | −900 | −100 |
| October | 2,200 | 3,000 | −800 | −900 |
| November | 5,500 | 2,200 | +3,300 | 2,400 |
| December | 6,800 | 2,000 | +4,800 | 7,200 |
| Year | 24,900 | 20,200 | +4,700 |
January
Cash in1,200
Cash out1,500
Net−300
Closing balance2,200
February
Cash in1,800
Cash out1,400
Net+400
Closing balance2,600
March
Cash in1,400
Cash out1,300
Net+100
Closing balance2,700
April
Cash in900
Cash out1,200
Net−300
Closing balance2,400
May
Cash in900
Cash out1,200
Net−300
Closing balance2,100
June
Cash in1,000
Cash out1,300
Net−300
Closing balance1,800
July
Cash in800
Cash out1,100
Net−300
Closing balance1,500
August
Cash in900
Cash out1,600
Net−700
Closing balance800
September
Cash in1,500
Cash out2,400
Net−900
Closing balance−100
October
Cash in2,200
Cash out3,000
Net−800
Closing balance−900
November
Cash in5,500
Cash out2,200
Net+3,300
Closing balance2,400
December
Cash in6,800
Cash out2,000
Net+4,800
Closing balance7,200
Year
Cash in24,900
Cash out20,200
Net+4,700
Closing balance
Over the year, Priya brings in £4,700 more than she spends. Yet the account is overdrawn at the end of September and October, by up to £900, while she prints stock and pays craft-fair fees for sales that will only land in November and December. Without the forecast she would find out when a supplier payment bounced.
- January to August36 %£8,900Eight quiet months
- September and October15 %£3,700Stock is being paid for
- November and December49 %£12,300Christmas sales and the wholesale payment
Fixing a tight month
A forecast is not there to confirm bad news. It is there to give you time to choose. Priya’s options:
- Ask the wholesale customer for a 50% deposit when the order is placed
- Split the print run: half in September, the rest in October once early orders are in
- Ask the printer for 30-day terms instead of payment up front
- Chase any late invoices the day they fall due
- Delay equipment that can wait until January
- Take less out for yourself for two months
- Arrange an overdraft with the bank before you need it
Priya asks the shop for a 50% deposit, £1,000, when it places the order in September. The remaining £1,000 still arrives in December:
| Month | Cash in | Cash out | Net | Closing balance |
|---|---|---|---|---|
| August | 900 | 1,600 | −700 | 800 |
| September | 2,500 | 2,400 | +100 | 900 |
| October | 2,200 | 3,000 | −800 | 100 |
| November | 5,500 | 2,200 | +3,300 | 3,400 |
| December | 5,800 | 2,000 | +3,800 | 7,200 |
August
Cash in900
Cash out1,600
Net−700
Closing balance800
September
Cash in2,500
Cash out2,400
Net+100
Closing balance900
October
Cash in2,200
Cash out3,000
Net−800
Closing balance100
November
Cash in5,500
Cash out2,200
Net+3,300
Closing balance3,400
December
Cash in5,800
Cash out2,000
Net+3,800
Closing balance7,200
She ends December with exactly the same £7,200, but never goes overdrawn. That is the point: the year’s result does not change, only the timing does. Our guide to the deposit invoice shows how to issue one and deduct it from the final invoice, and our guide to chasing an unpaid invoice covers what to do when the balance is late.
£100 at the end of October is still thin. Many owners set a minimum cushion, for example one month of fixed costs, and treat any month below it as a warning. Pick your own line and write it at the top of the forecast.
A template you can copy
CASH FLOW FORECAST — [Business] — [Year]
Jan Feb Mar ... Dec
CASH IN
Sales paid on the day [ ] [ ] [ ] [ ]
Invoices paid [ ] [ ] [ ] [ ]
Deposits received [ ] [ ] [ ] [ ]
Own money, loans [ ] [ ] [ ] [ ]
TOTAL CASH IN [ ] [ ] [ ] [ ]
CASH OUT
Stock and materials [ ] [ ] [ ] [ ]
Rent, fees, insurance [ ] [ ] [ ] [ ]
Subscriptions, bank [ ] [ ] [ ] [ ]
Tax payments [ ] [ ] [ ] [ ]
Loans, equipment [ ] [ ] [ ] [ ]
Taken out for yourself [ ] [ ] [ ] [ ]
TOTAL CASH OUT [ ] [ ] [ ] [ ]
NET CASH FLOW [ ] [ ] [ ] [ ]
OPENING BALANCE [ ] [ ] [ ] [ ]
CLOSING BALANCE [ ] [ ] [ ] [ ]
MINIMUM CUSHION [ ]
The monthly 15-minute update
- Replace last month’s forecast figures with actual cash in and cash out, from your bank statement and cash records.
- Carry the real closing balance forward.
- Read the next three months: any stock order, annual bill, tax instalment or big invoice due?
- If a month falls below your cushion, decide now which fix you will use.
- Add a new month at the end, so you always see twelve months ahead.
The slow part is never the table. It is digging out last month’s real numbers. If sales, purchases and invoices are recorded as they happen, the update takes minutes.
In Binome360 you keep a separate assistant for the business. Each sale or expense is recorded in one sentence, typed or spoken, against the right account (cash box, bank, mobile money), and nothing is saved until you confirm. Your invoices live there too: late ones are flagged, and a polite reminder message is ready to send.
Remind me on October 1 to pay the printer £1,200 for the Christmas range
Ready: a reminder on October 1, "Pay printer £1,200 (Christmas range)", in your "Cards" assistant. Save it?
Costs that repeat every month can be set up once as recurring expenses.
Try Binome360 for freeSales, expenses and invoices recorded as they happen, in an assistant just for the business.
- Cash box, bank and mobile money accounts kept by hand
- Recurring expenses for rent, subscriptions and insurance
- Invoices tracked as paid, due or late
- Reminders for supplier payments and tax instalments
- Monthly totals by category to fill in your forecast
Binome360 does not connect to your bank and does not forecast for you: the forecast stays yours. It gives you last month’s real figures in one place, so the update is quick.
Frequently asked questions
What is the difference between a cash flow forecast and a cash flow statement?
A forecast looks ahead: it estimates future cash in and out. A cash flow statement looks back: it reports what actually happened over a period, and is one of a company’s formal financial statements. For day-to-day decisions in a small business, the forecast is the one you use.
How far ahead should a small business forecast cash flow?
Twelve months, month by month, is the usual horizon, rolled forward each month. If cash is very tight, add a week-by-week view for the next six to eight weeks so you can see exactly when bills fall due.
Should I include VAT or sales tax?
Yes, if you are registered. Record sales and purchases at the amounts that actually hit your account, including tax, and put the tax you pay over to the authority as a separate cash-out line in the month you pay it.
Can a profitable business run out of cash?
Yes. Profit is measured over a period; cash is what is in the account on a given day. Paying for stock before selling it, waiting 60 days for customers, or a lumpy tax bill can all leave a profitable business short for a few weeks. The forecast is how you see that coming.
In short
A cash flow forecast puts each payment in and out in the month it really happens, and shows the balance at the end of every month. It finds the tight months hidden inside a profitable year, early enough to move an order, ask for a deposit or arrange an overdraft.
First step: write down today’s business bank balance, then list the three biggest payments you will make in the next three months, with their dates.
Sources
- U.S. Small Business Administration, "Write your business plan" (financial projections, monthly or quarterly for the first year): sba.gov.
- Internal Revenue Service, "Estimated taxes" ($1,000 threshold, four payment periods): irs.gov.
- HM Revenue & Customs, "Business records if you’re self-employed" (cash basis and traditional accounting): gov.uk.
- HM Revenue & Customs, "Understand your Self Assessment tax bill: payments on account": gov.uk.
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