What Is a Cash Flow Forecast?


A cash flow forecast is one of the most important predictors of a business’s long-term success. Knowing what money is coming in and out of your business and accounting for potential income and expenses can help you maintain your financial health. In this blog post, we'll discuss what a cash flow forecast is, how to create one, and how it can benefit your business.

What Is a Cash Flow Forecast?

A cash flow forecast is a prediction of future cash inflows and outflows within a given period of time. It’s an important financial planning tool because it helps you anticipate how much cash your business will receive and how much you’ll need to pay out. By forecasting your cash flow, you can make informed decisions about your expenses and investments and create a more secure financial future.

Definition of Cash Flow Forecast

A cash flow forecast is a financial document that provides a forecast of the estimated future cash flow of a business. It helps businesses and investors track the expected income and expenses over a specified period of time. It also provides insights into potential opportunities and risks associated with the cash flow of the company.

The Meaning of Cash Flow Forecast

A cash flow forecast is a prediction of the future balances of an organization’s cash accounts, such as its checking and savings accounts. The forecast enables management, investors, and lenders to get a better understanding of the organization’s financial situation, including how much money will be available in the future.

The Impact of Cash Flow Forecast

By creating an accurate cash flow forecast, businesses can decide whether they can finance future expansion, pay creditors and taxes on time, and in general, make sure they have enough cash on hand to pay their bills. After all, not having enough money coming into the business to cover its expenses is one of the biggest risks a business can face.

Types of Cash Flow Forecasts

A cash flow forecast typically looks at three types of cash flow: operating activities, investing activities, and financing activities. Operating activities are the day-to-day activities of the business that generate income and expenses, such as sales, payroll, and rent. Investing activities are activities that involve purchasing and selling assets, such as equipment and real estate. Financing activities are activities that involve raising and spending capital, such as issuing and paying debt and equity, and issuing and paying out dividends.

  • Operating Activities
  • Investing Activities
  • Financing Activities

Common Cash Flow Forecast Components

Inflow Types

Inflows refer to the income or any money that a business receives from outside sources. This can include payments from customers, money from investors, loans received, or money from other sources. Inflow also includes any money that the business saved from previous operations or projects, for example, money saved from buying inventory in bulk. Cash inflows are a vital input to any cash flow forecast.

Outflow Types

Outflows refer to any money the business spends on operating costs, such as rent, salaries, supplies and any other expenses. Outflows also include money spent on new projects or investments, such as hiring new employees, buying new assets or expanding the business. Cash outflows can quickly Deplete a businesses available cash reserves so it's important to keep track of outflow in order to ensure that there are sufficient funds for the business to continue operations.

Final Balance

At the end of the cash flow forecast, you should have a good idea of the total net cash increase or decrease that resulted from operations. This final balance will help you understand the financial health of your company as well as give you a good idea of what decisions need to be made to improve it. A final balance can also show you how much capital you will have available for future investments.

  • Cash Inflow: Payment from customers, money from investors, loans received, or money from other sources.
  • Cash Outflow: Rent, salaries, supplies and any other expense.
  • Final Balance: Net cash increase or decrease that resulted from operations.

Benefits of Cash Flow Forecasting

Cash flow forecasting is an important tool for any business, providing many great benefits that can help businesses of all sizes. It can bring a number of advantages, from better decision-making and improved borrowing capacity to conflict avoidance.

Borrowing Capacity

Cash flow forecasting helps to determine whether a business can afford to access extra financing. It will give insight into the business's ability to repay loans and other forms of debt. It also helps to understand which type of financing would be most suitable. As a result, businesses are able to access more financing, thus allowing them to grow.

Improved Decision-Making

Forecasting cash flow enables businesses to plan ahead and make business decisions with confidence, knowing that they are well prepared for the future. It provides insight on the best times to invest, when to hire new staff, and when to purchase new equipment. This can help businesses to be agile and move quickly when it comes to taking advantage of potential opportunities.

Conflict Avoidance

Cash flow forecasting can help to prevent potential conflicts. It allows businesses to anticipate potential cash flow issues before they arise, and thus identify solutions to address them. Being prepared for any financial crises can help to ensure that disagreements are resolved quickly, as opposed to escalating into larger issues.

Cash flow forecasting is an invaluable tool when it comes to running any business efficiently. It may require an initial investment, but it can pay off in the long run by providing better borrowing capacity, improved decision-making, and conflict avoidance.

What Should a Cash Flow Forecast Include?

A cash flow forecast gives businesses a preview of their financial standing for the near future. To make an accurate assessment, certain information must be included in the projections. The essentials are records of taxes, savings, and obligations that can help pinpoint the direction of the cash flow and identify risks or opportunities. A thorough analysis of financial information requires due diligence, but it is a key step on the path to viable cash flow forecasts.

Relevant Tax and Other Records

Knowing how much a company is required to pay in taxes can aid in developing a cash flow forecast by offering insights into how much of the organizational cash resources can be used on other projects. Additional records that are essential to the process include investments, loans, leases, and other services that require payments. If a company has been in debt, keeping track of these records goes a long way in avoiding surprises that could derail the cash flow of a business.

Savings and Obligations

Unexpected expenses can pop up throughout the year, so it’s essential to consider the possibility of emergency costs when forming a cash flow forecast. Having a healthy nest egg can provide a safety cushion when sudden payments become necessary. Therefore, businesses should factor in the amount held in savings when making a cash flow forecast. It’s also important to stay mindful of any upcoming obligations that must be paid as part of a contract or agreement.

Analysis of Financial Information

A cash flow forecast is only as accurate as the information used to make it. When businesses make assumptions about their financial reality, things can quickly become muddled and the numbers become unreliable. To forestall these scenarios, it’s wise to inspect the recent performance of assets, liabilities, equity, and other variables to craft a forecast with a higher likelihood of success.

  • Tax and other records
  • Savings and obligations
  • Analysis of financial information

Preparing a Cash Flow Forecast

When creating a cash flow forecast, business owners must research their financial history, consider future trends, and predict their cash inflows and outflows for every month. To do an effective job of creating this forecast, careful record keeping and accurate tracking of changes in income and expenses is critical. Fortunately, business owners have several options to assist in the process.

Research and Record Keeping

The individual business owner should take into account the previous year’s financial statements, bank statements, invoices and records of tax payments and expenditures. The business also should consider any expected changes in the market that could affect sales and resulting cash flow, such as seasonality, buyer trends, market growth and regulatory changes.

Once all this information is gathered, the business operator must analyze the data to determine which payment methods are used most often and the approximate amount of money needed to meet everyday business obligations, such as electricity, insurance and payroll. Cash flow forecasting is part of effective financial management, and the careful record keeping of past and present data is essential for making accurate predictions about the future.

Use of Cash Flow Forecasting Software

Many small businesses find software programs designed for financial forecasting to be invaluable for developing a cash flow forecast. Such software predicts cash flows based on past data and expert assumptions. It may provide financial planners the ability to explore “what if” scenarios and make adjustments in order to try to optimize the outcome. In addition, this type of software simplifies the budgeting process and tracks revenue, expenses, and other key performance indicators with Live Dashboards. Manually tracking data is time consuming, and using the right software can make the entire process much easier and more accurate.

Working with Professionals

Experts also can be valuable resources for small business owners, from accountants to financial advisors. Working with a financial expert can provide a reliable cash flow forecast along with advice on how to reorganize finances, pay debt, and calculate taxes. An accountant also can provide advice on setting up an effective bookkeeping system and provide guidance in budgeting and forecasting.

Whether through software or with the help of an expert, small business owners should prepare a cash flow forecast as a crucial part of their financial planning. It is essential to identify and manage problems that arise during the course of running a business, and having an accurate cash flow forecast in place is a great way to do that.


A cash flow forecast is an estimation of a business’ expected cash inflows and outflows over a given period – often one year. It's an important tool used by businesses, of all sizes and industries, to achieve greater financial clarity and gain better control over their funds. By projecting both inflows and outflows of cash, businesses can anticipate when and how much money is due to arrive or be paid out, which can help manage financial obligations more effectively.

Summary of Cash Flow Forecasting

Cash flow forecasting involves reviewing prior financial transactions, projecting expected revenue, calculating anticipated expenses and determining the forecastsed net cash flow for a given period. It's a tool used by businesses to provide greater insight into their financial future to inform decision-making and strategic planning.

Benefits of Cash Flow Forecasting

Cash flow forecasting is valuable for businesses of all sizes and industries because it can help long-term planning and provide a clearer picture of the company’s financial position. There are several benefits to creating a cash flow forecast, such as:

  • Identify and avoid cash flow problems
  • Project future financial needs
  • Allocate resources better
  • Manage tax obligations
  • Negotiate better terms with vendors
  • Create buffer funds for unexpected expenses

In conclusion, cash flow forecasting is a useful tool for businesses to review the past and inform decision-making for the future. It provides greater transparency around future cash flows, which can help preempt and avoid financial risks.

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