You already forecast cash. You just do it in your head, in the shower, at 6:40 a.m. "Payroll's Friday, the Henderson check should clear Thursday, rent's the 1st, so we're fine. Probably. Unless."
A cash flow forecast is that same thinking, written down, with fewer "unless"es. It isn't fancy and it doesn't need special software. A spreadsheet and one focused afternoon will get you a working version.
This guide walks through building a cash flow forecast for small business owners step by step, with a worked example and a simple template you can copy.
What a cash flow forecast does (and doesn't do)
A cash flow forecast predicts your bank balance over the coming months, based on when money will actually arrive and leave. It answers questions like "Can we afford to hire in September?" and "Will we be tight around the insurance renewal?"
It doesn't predict profit. That's the P&L's job, and the two can disagree a lot. If you've ever wondered why, read profitable but no cash? where your money actually went first. It'll make this afternoon go faster.
What to gather before you start
Give yourself about 30 minutes to collect:
- Today's bank balances (all business accounts)
- Your A/R aging report, showing who owes you and how overdue they are
- Your A/P aging report and any bills due soon
- Payroll amounts and pay dates
- Loan payment schedules
- A list of annual or irregular costs: insurance, software renewals, equipment you plan to buy
- Your best guess at sales for the next few months, and how quickly customers usually pay
All of this is easier, and more trustworthy, if the books are reconciled. Forecasting from messy books is like planning a road trip with a map that's missing a few towns.
A simple cash flow projection template
You don't need a downloadable file. A cash flow projection template is five rows, with a column for each month:
- Starting cash: last month's ending cash.
- Cash in: customer collections, plus any loans or owner contributions.
- Cash out: payroll, rent, vendors, loan payments, owner draws, annual items.
- Net cash flow: cash in minus cash out.
- Ending cash: starting cash plus net cash flow.
Then add one more line: your minimum comfortable balance. Every month that ends below it gets highlighted. How high that floor should be is its own question, covered in how much cash a small business should keep in the bank.
How to build a cash flow forecast for small business in an afternoon
- Hour one: enter starting cash, then list cash out. Fixed costs first (payroll, rent, loans), then variable ones, then annual items in the month they're actually due.
- Hour two: list cash in. Start with open invoices in your A/R aging, placed in the month you realistically expect them (not the due date, the realistic date). Then add expected new sales, delayed by your usual collection time.
- Hour three: let the spreadsheet calculate ending cash. Look for the lowest month. Then ask, "What would make this worse?" and test one bad scenario, like your largest customer paying 30 days late.
- Last half hour: write down two or three actions for any month below your floor.
A worked example: an electrical contractor's next six months
Imagine you run a ten-person electrical contractor. Starting cash on July 1 is $60,000. Typical monthly cash out is $113,000 (payroll $70,000, materials $25,000, rent and overhead $9,000, loan $3,000, owner draw $6,000). Collections usually run about $110,000 a month. Your floor is $30,000.
- July: $60,000 + $110,000 - $113,000 = $57,000
- August: $57,000 + $110,000 - $113,000 = $54,000
- September: a progress payment brings collections to $118,000. Ending cash: $59,000
- October: annual insurance of $12,000 is due. Ending cash: $44,000
- November: a general contractor that owes you $25,000 usually pays 45 days late, so collections drop to $85,000. Ending cash: $16,000
- December: the late payment arrives, collections hit $135,000. Ending cash: $38,000
November drops below your floor by $14,000. You know this in July, which is the whole point. Now you have options: ask for a deposit on the next big job, set up or confirm a line of credit, push the planned van purchase to January, or start calling about that $25,000 in October instead of November.
Keep the forecast alive
A forecast built once and never touched becomes fiction by about week six. Once a month, after the books close, replace last month's estimates with actuals and add a new month at the end. It takes about 20 minutes once the structure exists.
When cash gets tight, monthly isn't detailed enough. That's when a weekly version helps: the 13-week cash flow forecast, explained for busy owners shows how. Reliable starting numbers come from reconciled books, which is the heart of our financial clarity work, and if you'd like someone to build and maintain the forecast with you, that's part of our CFO services.
Questions owners ask
How far ahead should a small business cash flow forecast go?
Three to six months, month by month, works for most small businesses. If cash is tight or you're facing a big decision, add a weekly 13-week forecast for the near term.
What's the difference between a cash flow forecast and a budget?
A budget is a plan for revenue and expenses, usually for a year. A cash flow forecast predicts when money will actually move in and out of the bank, including things a budget may skip, like loan principal and owner draws.
How accurate does a cash flow forecast need to be?
Accurate enough to show the low points. You won't get every number right, but updating it monthly with actual results keeps it close enough to make decisions with.
One useful note a month
If you liked building this, The ABFI Accounting Brief sends practical notes on books, closes, reporting and controls to owners who'd rather plan than panic. Join The ABFI Accounting Brief to get the next one. And if you'd rather have your forecast built on reconciled numbers by people who do this every month, you can request a consultation.