What Is a Cash Flow Forecast?

What is a cash flow forecast?

Cash flow is the movement of money into and out of a company over a certain period. It shows how much cash comes in from things like sales or services, and how much goes out for expenses, bills, and other payments. A cash flow forecast is an estimate of how much money your business expects to receive and spend over a certain period, such as the next month or quarter. It helps you predict whether you’ll have enough cash to pay your bills, cover expenses, and keep things running smoothly. It’s a key measure of a company’s financial health and ability to meet its obligations.

Cash flow is the real lifeline of any business. Even if sales are growing and the order book looks full, daily operations can grind to a halt surprisingly fast if there isn’t enough money in the bank. That’s why planning and forecasting cash flow are essential for every company’s success. And often, these are the very things that separate thriving businesses from those that run into trouble.

Why should you make a cash flow forecast?

Managing a company’s finances means looking ahead. A cash flow forecast helps you prepare for upcoming events, anticipate funding needs, and make timely decisions. By predicting cash movements, your company can react early, avoid cash crunches, and make the most of opportunities.

What is a cash flow statement?

A cash flow statement is a report that shows the money coming in and going out of a company during a specific period. It breaks down cash into three main streams:

• Cash flow from operations (or operating cash flow) shows how much money the company earns and spends in its core business, like payments from sales and services, as well as operating expenses.

• Cash flow from investments covers money spent or received for future growth, such as buying equipment or making other investments.

• Cash flow from financing shows how much outside funding the company has received (like loans or investments) and how much has been paid back.

Timeframes for cash flow forecasts

You can create cash flow forecasts for different periods, depending on your company’s needs:

• Short-term forecasts (daily or weekly) help ensure you have enough working capital for day-to-day operations and unexpected expenses. A 13-week forecast is a common way to model cash flow, but in urgent situations, it’s recommended to use a daily forecast for 4–5 weeks.

• Medium-term forecasts help you spot potential cash shortfalls early and plan actions to address them or, on the flip side, invest surplus funds wisely. Here, the goal is to understand cash flow behaviour over the next 3–12 months, rather than focusing on daily details.

• Long-term forecasts (over a year) support strategic planning and investment decisions, though accuracy tends to decrease over time.

How can you strengthen your company’s cash position?

There are many ways to improve your cash flow, and the sooner you act, the better your chances of handling tough situations. For example:

• Speeding up invoicing and reviewing payment terms

• Pre-invoicing and improving collection of accounts receivable

• Using factoring and cash discounts

• Arranging payment schedules for purchase invoices and critically reviewing expenses

• Negotiating tax payments and using inventory as collateral for financing

• Selling unnecessary assets or renting equipment instead of buying

• Bank credit lines and public funding

If you face a cash crisis, the most important thing is to be concrete and systematic: assess your current situation, prepare clear calculations and a plan for both securing extra funding and cutting costs. Know exactly how much money you need, for what purpose, and when.