Cash Flow Forecast Example: 3 Worked Examples for Small Businesses

The fastest way to understand a cash flow forecast is to see one working. Below are three worked examples: a service business, a retail shop and a startup. They use the same four building blocks, but each reveals a different problem and leads to a different decision. Every figure is in dollars and the arithmetic is shown so you can follow it.

The four building blocks are always: opening balance + cash in − cash out = closing balance, and each closing balance becomes the next period’s opening balance.

Example 1: A service business with slow-paying clients

A consulting firm with five staff starts the quarter with $30,000 in the bank. It invoices about $50,000 a month, but clients pay 60 days after invoice on average. Costs are $44,000 a month, plus a $9,000 quarterly tax payment in month 2.

What it reveals: month 2 receipts are low because two clients’ invoices from a quiet period fall due, and the tax payment lands in the same month. The balance drops to $17,000, less than half a month of salaries.

What the owner did: asked the two largest clients for 50 percent up-front on new projects, set up a tax savings account that takes 10 percent of every receipt, and arranged a $20,000 overdraft as a backstop. None of it cost much, but all of it needed to be done before month 2, not during it.

Example 2: A shop buying seasonal stock

A gift shop starts September with $60,000 and wants to keep at least $35,000 in the bank. Sales are about $70,000 a month, rising to $120,000 in December. Stock costs 52 percent of sales and must be paid two months before it sells.

September pays for November’s stock (52 percent of $94,000 = $48,880) and October pays for December’s (52 percent of $120,000 = $62,400), while sales are still ordinary.

What it reveals: the tightest month is October, not January as the owner assumed. The balance falls to $33,720, below the $35,000 the owner wanted to keep.

What the owner did: negotiated with the main supplier to split the Christmas order into two payments, a month apart, which kept October above the buffer. They also agreed to keep $30,000 aside from December’s takings to cover January and February, when sales are lowest.

Example 3: A startup with fixed runway

A software startup has $650,000 in the bank. Revenue is $14,000 a month and growing 7 percent a month. Costs are about $110,000 a month, mostly salaries. A seed round of $1.5 million is expected in month 6.

Net burn, costs minus revenue excluding funding, is about $96,000 a month. With $650,000 at the start, runway is about 6.8 months.

What it reveals: the round lands in month 6 with only about $180,000, less than two months of burn, left in the bank. If the round slips by two months, the company runs out of cash.

What the founders did: started investor conversations immediately, delayed two planned hires until the round closed, and built a second scenario with the round arriving in month 9 to see what they’d need to cut. Our guide to cash runway explains the calculation.

How to read a forecast like these

When you look at any cash flow forecast, read it in this order:

1. Find the lowest closing balance and the period it falls in. That is the number that decides whether you have a problem.
2. Compare it with your buffer, the minimum you want to keep. Four to eight weeks of fixed costs is a common rule.
3. Look at what causes the low point. Is it a lump, such as tax or a large purchase, or a trend, such as costs growing faster than receipts?
4. Check the receipts line for optimism. Are customer payments in the month they really arrive, or the month you hope they will?
5. Look at the end balance, which shows whether the business is building or burning cash over the whole period.

Adding scenarios

Each example becomes more useful with a second version. For the consulting firm, a worst case might have the largest client paying a month late. For the shop, 15 percent lower Christmas sales with the same stock order. For the startup, the round arriving three months late. If the worst case still stays above zero, the plan is robust. If it doesn’t, you know exactly what to prepare for. The premium templates switch between expected, best and worst case with one setting.

A weekly version

Example 1 is monthly. If the consulting firm pays salaries on the 25th and most clients pay in the first week of the month, a monthly view hides a week-by-week pattern: the balance is lowest just before month end, then recovers. For tight periods, the same numbers laid out week by week in a 13-week forecast show exactly which Friday is the problem.

What the three examples have in common

1. The problem was timing, not profitability. All three businesses were viable. Each had a month where cash in and cash out didn’t line up. See cash flow vs profit for why this happens.
2. The lowest balance was a surprise. In each case the owner expected a different month to be the hardest.
3. The fix was cheap because it was early. Deposits, split orders, delayed hires and a backstop facility are easy to arrange weeks ahead and hard to arrange in a crisis.
4. The forecast was simple. None had more than a dozen lines. The value came from putting cash in the month it actually moves.

Build your own

1. Start with today’s bank balance.
2. List receipts in the week or month they will actually arrive.
3. List every payment, including quarterly and annual ones.
4. Find the lowest closing balance and compare it with your buffer.
5. Decide what you’ll do about it now.

The step-by-step method is in how to make a cash flow forecast. The templates below follow the same layout as these examples.

Examples 2 and 3 match our industry templates: the retail store template calculates stock purchases from sales and lead time, and the startup template adds a funding schedule and runway tab.