Skip to content

How to Write a Cash Flow Forecast

A cash flow forecast is usually at the centre of a business plan's finance section — it's what actually shows whether a new business will have enough cash to survive, not just whether it will eventually be profitable.

Why It Matters More Than a Profit Forecast

A profitable business can still fail from running out of cash — this happens when customers pay slowly, too much money is tied up in stock, or a big purchase falls due before revenue arrives. A cash flow forecast catches this risk weeks or months before it becomes a crisis, which a profit-only forecast never shows. See our guide to working capital for more on why this specific gap is the most common reason growing small businesses fail.

How Far Ahead to Project

Most lenders and investors expect at least a 12-month forecast for a new business — this is a standard requirement for a Start Up Loan application, for instance. Some plans extend to 2-3 years. Accuracy naturally decreases the further out you project, and that's expected — a reasonable estimate for year two or three still demonstrates that you've thought about longer-term cash generation, even if the specific figures are necessarily less certain than next month's.

What to Include

Every significant item of expected income and expenditure should appear, broken into monthly (or, for longer periods, quarterly) segments:

  • Income — sales revenue, any loan or investment received during the period, and any other cash inflows
  • Outgoings — supplier payments, rent or premises costs, wages, loan repayments, tax due, and any other significant expense
  • Running cash balance — the cumulative cash position at the end of each period, which is what actually reveals whether and when you'll run short

Vague or missing categories undermine the forecast's credibility fast — assessors who review a lot of these can spot a forecast that's been rushed or padded.

Common Mistakes

  • Confusing profit with cash. A sale recorded as revenue this month might not actually be paid for 30-60 days — the forecast should reflect when cash actually arrives, not when the sale is made.
  • Being too optimistic on timing. Assume customers will pay at the slower end of your terms, not the fastest, when forecasting incoming cash.
  • Missing one-off costs. Equipment purchases, deposits, or annual renewals that don't recur monthly are easy to leave out but can create a real shortfall if unplanned for.
  • Not updating it. A forecast built once at the start and never revisited loses its value fast — treat it as a living document, especially once you have real trading data to compare against.

Frequently Asked Questions

A cash flow forecast projects when money will actually enter and leave your business — not just whether you'll be profitable, but whether you'll have enough cash in the bank at any given point to pay your bills. It is usually broken into monthly or quarterly periods and is a core part of any UK business plan's finance section.

Most lenders and investors expect at least a 12-month forecast for a new business. Some plans extend to 2-3 years, though accuracy naturally decreases the further out you project — a rough estimate for year 3 is still worth including, as it shows you've thought about longer-term cash generation, even if the specific numbers are uncertain.

A profit forecast shows revenue minus costs over a period — it can show a profitable business. A cash flow forecast shows the actual timing of money moving in and out, which can reveal a cash shortage even in a profitable business, for example if customers pay slowly or a large purchase is due before revenue arrives. Lenders care about both, but a cash shortage is what actually causes a business to fail, not a lack of paper profit.

All expected income (sales, loans received, any other cash inflows) and all expected outgoings (supplier payments, rent, wages, loan repayments, tax) for each period, resulting in a running cash balance. Every significant, foreseeable item of income and expenditure should appear — vague or missing categories undermine the forecast's credibility.