How to Make a Cash Flow Forecast in 7 Steps (with Free Template)

A cash flow forecast shows how much money will be in your bank account each week or month, so you can see a shortfall long before it happens. This guide walks through building one from a blank sheet in seven steps. It takes about an hour the first time and ten to fifteen minutes a week after that.

Before you start, gather: your current bank balances, a list of unpaid customer invoices, your regular bills and their due dates, your payroll schedule, any loan repayment schedules, and your last three months of bank statements. The bank statements are the most useful of all, because they show what really happens rather than what’s supposed to happen.

Step 1: Choose your time frame

Pick 13 weeks if cash is tight, you pay staff weekly or fortnightly, or a lender has asked for a short-term forecast. Pick 12 months for planning, budgeting and deciding when to hire or invest. If you’re unsure, start monthly and add a weekly view for the next quarter once the monthly one is working.

Whichever you choose, keep the periods consistent: every column should be one week or one calendar month. Mixing weeks and months in one sheet is the most common source of errors.

Step 2: Enter your opening balance

Use the actual balance of every business bank account today, added together. Don’t include money customers owe you yet; that goes in cash in when it arrives. Don’t include an overdraft limit either: the forecast should show when you’d need to use it, not hide it.

If you have money set aside for tax or held for customers, such as deposits or client funds, note it separately. It’s in the bank, but it isn’t yours to spend.

Step 3: Forecast cash coming in

List every source of cash and the period it will land in the bank:

• Existing invoices. Go through unpaid invoices and put each one in the week or month you realistically expect it, based on how that customer usually pays.
• New sales. Forecast from your pipeline, bookings or last year’s pattern. Discount uncertain deals; a 50 percent chance of a $10,000 contract is not $10,000.
• Cash and card sales. Use daily or weekly averages, adjusted for seasons, and allow for card settlement delays.
• Other money in. Loans, grants, owner investment and tax refunds, only when timing is reasonably certain.

Step 4: Forecast cash going out

Start with fixed costs that never move: rent, payroll, loan repayments, insurance and software subscriptions. Put payroll in on its actual pay dates, including payroll taxes and pension contributions.

Then add variable costs that move with sales: materials, stock, subcontractors, card fees and delivery costs. Tie them to your sales forecast where you can, so a change in sales changes the costs too.

Finally, add the lumpy payments people forget: quarterly sales tax or VAT, income tax installments, annual insurance renewals, equipment, bonuses, license renewals and owner drawings. These are usually what cause the tightest months.

Step 5: Calculate the closing balance

For each period: opening balance + cash in − cash out = closing balance. Carry it forward as the next period’s opening balance.

In a spreadsheet, this is one formula per cell, copied across. The formula for the opening balance of week 2 is simply the closing balance of week 1.

Step 6: Set a cash buffer and find the low point

Decide the minimum balance you’re comfortable holding. A common rule is four to eight weeks of fixed costs, more if your income is seasonal or depends on a few large customers.

Now find the period with the lowest closing balance. If it falls below your buffer, you have a problem to solve now rather than later. The options usually fall into four groups:

1. Bring cash in sooner: chase overdue invoices, ask for deposits, offer a small discount for early payment, or invoice as soon as work is done.
2. Push cash out later: agree longer supplier terms, move a purchase, or spread a large payment.
3. Reduce cash out: cut or delay discretionary spending, or pause owner drawings for a month.
4. Arrange funding in advance: an overdraft, credit line or invoice finance is far easier to set up before you need it.

Step 7: Update it every period

A forecast is only useful if it’s current. At the end of each week or month:

1. Replace forecast figures with actual figures for the period just finished.
2. Note the biggest differences and why they happened.
3. Adjust your assumptions: if customers are paying later than you thought, change the timing everywhere.
4. Roll the forecast forward so it always looks the same distance ahead.

This habit is what turns a forecast from a one-off exercise into a management tool. After a few months, you’ll know which lines you forecast well and which you don’t.

What the forecast tells you: a worked example

Imagine a small gift shop that has built its first 12-month forecast. It starts October with $42,000 in the bank and a buffer of $29,000. The forecast shows three things it didn’t know before.

First, October is the tightest month of the year, not January as the owner assumed. The shop pays for its Christmas stock two months ahead, so October carries December’s stock bill while sales are still ordinary. The closing balance dips below the buffer.

Second, December brings in far more than the shop needs, so there’s room to repay the short-term facility used in October and still keep a healthy balance for the quiet start of the year.

Third, February is the second pinch point, when sales are at their lowest and the annual insurance renewal falls due.

With those three facts, the owner asks the main supplier to split the Christmas order across two payments, schedules the insurance on monthly installments, and sets a rule to keep $30,000 aside from December’s takings. None of that needed new software or an accountant, just a forecast built the way this guide describes.

Common mistakes

Build a best and worst case

Once the main forecast works, copy it and change a few key assumptions. A worst case might have sales 20 percent lower, your biggest customer paying 30 days late and costs 5 percent higher. If the worst case still stays above zero, you’re in good shape. If not, you know what to prepare for. Premium templates do this with a single switch.

Use a template instead of starting from scratch

A template gives you the structure, formulas and chart, so you only type numbers.

Industry templates come with the right cash lines and timing already in place, such as progress billing for construction, food costs for restaurants or subscribers and churn for SaaS. Find yours in templates by industry. For the weekly version, see the 13-week cash flow forecast guide, and for the basics, what a cash flow forecast is.