Making accurate cash flow forecasts

Key points in this article

  • The usefulness of cash flow forecasts
  • Using historical data
  • Reviewing your forecasts

The livelihood of any business depends on cash flow – making the ability to forecast accurately a vital skill. Our guide will offer you some tips on creating reliable forecasts as your business grows.

The essence of a cash flow forecast

What is a cash flow forecast? In a nutshell, it forecasts the incomings and outgoings of cash over a given period – like the next six months or financial quarter.

It also tells you what cash surplus or deficit should be left over at the end of that period.

Cash flow forecasts can also help you make day-to-day decisions by assisting you to evaluate:

  • Whether you should increase or decrease customer credit terms.
  • Supplier payment terms to negotiate – for example, if cash flow will be slow, you'll want more time to pay your suppliers.
  • Future business overdraft requirements.

Actions to take if your margins will be reduced by unexpected overheads or sales begin to lower.


Perhaps the greatest value of cash flow forecasting comes from its benchmarking qualities.

After the period you've forecasted has ended, you can go back and compare it to reality by judging the performance of your business and identifying unexpected cash flow issues. Then you can remain in greater control in the future.

Your cash flow forecast will help with your business’s day-to-day decisions

When to use a forecast

Your cash flow forecast should be completed for each month. Remember to take into account any:

  • Seasonal aspects of your business.
  • Cash cycle issues – you may get a lot of business in June but only get paid for it in August.

Using historical data

If you have previous trading history to go on, the forecasting process will be easier. You can take your reliable data from previous trading periods and increase or decrease the amounts depending on your insights into future markets.

But accuracy is key. For example, if there's a lot of talk about the economy getting worse or turning a corner, don't be too quick to make any blanket assumptions.

Talk to your customers and suppliers to find out about confidence in your specific sector. Then, check your findings with a credible accountant with experience in your industry to fine-tune your data.

The more effort you place into dispelling assumptions now, the more accurate your cash flow forecast will be.

Historical data is a good source for forecasting your business’s future

Analysing your forecast

Once you complete your cash flow forecast you'll either find that you're heading towards a cash surplus or a cash deficit position. If it's the latter, don't panic – it's actually a good thing that you spotted this now, as you’ll have time to adjust course.

If the cash shortfalls you've identified are greater than your overdraft facility, talk to us. We'll work with you to help you further identify the sources of your cash shortfalls and the solutions you can use to reduce or eliminate them.

Regardless of your findings, you should:

  • Review your completed cash flow forecasts regularly.
  • Insert actual figures once available.
  • Investigate any discrepancies between actual figures and your budget – based on your forecasts.

It's all about staying in financial control so you can show other stakeholders and advisers that you know the direction your business is going in, while reducing the likelihood of encountering any unexpected financial bumps along the way.Top of Form

To improve your forecasts you’ll want to review each one so you can make future adjustments

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