top of page

How to Forecast Your Business Cash Flow- Cash Flow Forecast 101

Running a small business is hard. One of the particular challenges that such businesses face is disruptions to cash flow. Indeed, one of the best places to understand the difference between cash flow and earnings is by running a small business. Its a tough education but its well worth it!

In this article, we're going to look at a method which will help you immensely when it comes to managing cash flow. The method is quite obvious but surprisingly, most small business owners never execute this.

The Cash Flow Forecast

Sounds simple doesn't it? However, a cash flow forecast can be tricky to implement. This forecast is just a list of your expected cash inflows and outflows over the next few quarters or months (depending on your needs).

Typically, this forecast is extended out over a period of a year but it really depends on your business needs. Startups will most often find that projecting beyond 6 months at a time is pointless due to fast changing nature of their business.

A company in a more settled stream of work will find this projection a lot easier since they will have more data to go on. A good idea is to approximate the prior year's cash flows and add a premium onto them to arrive at a decent approximation.

Preparing the Forecast

The best part about this method is that it doesn't require you to create anything beyond a simple spreadsheet. The structure of this sheet is simple enough.

You need to have columns for the month, the projected inflow and the outflow, the projected cash balance at the end of the month, the actual cash inflow, the actual cash balance and the difference between the projected cash balance and the actual balance.

Also have a column dedicated to tracking your owner earnings. That is, the amount of free cash left over after operating expenses and capital expenditures.

Its also a good idea to have a column dedicated to listing out, by name, the various cash outflows expected during that month. This way you know exactly what is coming up with a singe glance instead of just looking at a bunch of numbers.

Matching the projected balance with the actual balance is an important exercise since it shows how close to reality your projections are and is a great way of gathering feedback.

Avoid These Pitfalls

A common mistake when projecting cash flow is to amortize your one time expenses into monthly installments. Remember this is acceptable when it comes to earnings but defeats the purpose of mapping out your cash flow.

These one time expenses are a great insight into the seasonal characteristics of your business and you ought to take their feedback seriously. Planning upgrades around times when you're flush with cash is a great example of this.

Another common mistake is to ignore the owner earnings, that is, the free cash flow after expenses and re-investments are deducted. The earnings figure is a number that looks good to investors but as an owner, what you're most concerned with is how much can you pull out of the business without causing damage.

Working out this number is a great way to not just asses the health of your business but also a competitor's or a potential takeover candidate.


All in all a cash flow forecast is a basic, but unfortunately, ignored projection small business owners don't bother with. Forecasting your cash flow only takes an hour at most and runs on autopilot after that.

This will help you get a true picture of your business' health as well as correctly plan for future expenses and investments. Now, that is something everyone can get behind!

Recent Posts

See All

The 4 Pillars of Great Content Marketing

You're talking to a friend about how terrible your day was. Your client was unreasonably irritating, your lunch tasted like burnt leather, and even your dog ignored you. To cap it all, your car broke


  • Facebook
  • Twitter
  • YouTube
bottom of page