Articles & Toolkit > How to Build a Cash Flow Forecast That Works
How to Build a Cash Flow Forecast That Works
Cash flow is the lifeblood of every business. It doesn’t matter how profitable our business looks on paper — if we can’t manage the timing of money coming in and going out, we risk running short when we need it most.
That’s where a cash flow forecast comes in. It’s not just a spreadsheet exercise; it’s a tool that gives us clarity, reduces stress, and helps us make smarter decisions for the future.
In this article, we’ll break down what a cash flow forecast is, why it’s so important, and exactly how to build a simple one that actually works for your business.
What Is a Cash Flow Forecast?
A cash flow forecast is an estimate of how much money will flow into and out of your business over a certain period — usually weekly, monthly, or quarterly. It shows:
Cash inflows – sales, customer payments, loans, investments.
Cash outflows – rent, payroll, supplier invoices, taxes, loan repayments.
Net cash flow – the difference between inflows and outflows.
Think of it like a roadmap. Instead of just guessing whether you’ll have enough to cover bills next month, a forecast helps you see the peaks and troughs ahead.
Why Every Business Needs One
Even successful, growing businesses can get into trouble without a forecast. Here’s why:
Avoiding surprises – No one likes scrambling to cover payroll or rent because they didn’t see a shortfall coming.
Better decision-making – Thinking of hiring? Expanding? Investing in equipment? A forecast tells us if it’s affordable.
Peace of mind – When we can “see ahead,” we sleep better at night knowing what’s coming.
Building resilience – Forecasts help us plan for best- and worst-case scenarios, so we’re ready for anything.
Stakeholder confidence – Lenders, investors, and even suppliers love seeing a business with its cash under control.
The Building Blocks of a Simple Cash Flow Forecast
You don’t need to be an accountant to build one. All you need is:
A spreadsheet tool like Excel or Google Sheets (or accounting software like Xero, MYOB, or QuickBooks).
Accurate starting numbers from your bank account and accounting records.
A basic structure — money in, money out, and a running balance.
Let’s walk through the steps.
Step 1: Set Your Timeframe
Decide how far ahead you want to forecast.
Short-term (weekly, 13 weeks) – Best for businesses with tight cash positions, seasonal swings, or rapid growth.
Medium-term (monthly, 12 months) – Good for most small to medium-sized businesses.
Long-term (multi-year) – Helpful for strategic planning, loans, or investment decisions.
Tip: Start small. A 12-week forecast is manageable and gives you immediate insights. You can expand later.
Step 2: Estimate Your Cash Inflows
This is money coming in. Be realistic — it’s better to underestimate than overestimate.
Include:
Customer payments (based on invoices and expected payment times).
Cash sales.
Loans or finance injections.
Tax refunds or grants.
Owner contributions.
Key point: If you issue invoices with 30-day terms, don’t assume you’ll get the money immediately. Build in delays for late payers.
Step 3: Estimate Your Cash Outflows
This is money going out. It’s often more predictable than inflows.
Include:
Rent and utilities.
Payroll and superannuation.
Supplier invoices and stock purchases.
Loan repayments and interest.
Tax obligations (GST, PAYG, income tax).
Subscriptions, insurance, and overheads.
Tip: Go through your bank and credit card statements from the last 6–12 months to make sure you capture everything.
Step 4: Calculate Net Cash Flow
Net cash flow = Inflows – Outflows
This shows whether you’re in surplus (positive cash flow) or deficit (negative cash flow) for the period.
Step 5: Track the Closing Balance
This is the cumulative effect — what you have left in the bank at the end of each period.
Starting balance (what’s in the bank now) + net cash flow = closing balance.
Your closing balance tells you if you’ll have enough to pay your bills.
Step 6: Review and Adjust Regularly
A forecast is not “set and forget.” It’s a living tool. Update it regularly with actual numbers and adjust your future estimates.
Compare forecast vs. actuals.
Identify where your assumptions were off.
Refine your estimates for greater accuracy over time.
Tips to Make Your Forecast Work in Real Life
Keep it simple – Overly complex models don’t get used. Start with inflows, outflows, and balances.
Use rolling forecasts – Always look 12 weeks or 12 months ahead, updating as time passes.
Build in buffers – Assume some invoices will be late, and add a cushion for unexpected expenses.
Plan scenarios – Create “best case” and “worst case” versions to see how resilient your business is.
Leverage tech – Cloud tools like Xero, Futrli, or Spotlight Reporting can automate much of the process.
Common Mistakes to Avoid
Overestimating sales – Hope is not a strategy. Be conservative.
Forgetting taxes – BAS, PAYG, and super can sneak up on you.
Not accounting for seasonality – Christmas, EOFY, or industry cycles can cause major swings.
Failing to update – A forecast that sits untouched for six months is not beneficial.
A Simple Template to Get Started
Here’s a basic structure you can create in Excel or Google Sheets:
Columns:
Week/Month
Opening Balance
Inflows (broken into categories)
Outflows (broken into categories)
Net Cash Flow
Closing Balance
Rows:
Each week or month.
With just these elements, you can see your cash position at a glance.
Short Example: A Small-to-Medium Sized Café
Let’s say you run a café.
Inflows: $60,000 sales per month, but 20% of invoices are paid 2 weeks late.
Outflows: $25,000 wages, $10,000 rent, $20,000 supplies, $5,000 overheads.
Without a forecast, you might assume $60,000 always covers $60,000 of costs. But by factoring in late payments, you see a cash shortfall in certain weeks — giving you time to arrange an overdraft or adjust expenses.
Why This Matters More in Tough Times
In times of economic uncertainty, a cash flow forecast isn’t just helpful — it’s essential. Rising costs, delayed payments, and unpredictable demand make cash flow visibility critical.
With a forecast, we can:
Spot cash gaps months in advance.
Decide whether to delay expenses or speed up collections.
Give confidence to banks or investors if you need funding.
How an Accountant Can Help
While building a forecast yourself is possible, an accountant can:
Set up an efficient template or software solution.
Help refine assumptions with industry benchmarks.
Provide scenario planning for growth, investment, or downturns, particularly for complex cash flows.
Keep you accountable by reviewing it regularly.
At Shepherdson & Company, we often see clients breathe a sigh of relief once they have a clear forecast. It transforms uncertainty into confidence. We’ve uploaded a Cash Flow Statement Template based on AASB 107 in our Toolkit section here.
Final Thoughts
A cash flow forecast isn’t about predicting the future perfectly — it’s about shining a light on what’s ahead so you can prepare, adapt, and stay in control.
Start small, keep it simple, and update often. With a clear forecast, you’ll make better decisions, reduce stress, and build a stronger business.
Your numbers don’t have to be intimidating — they can be empowering.
At Shepherdson & Company, Your Success Is Our Business
Your business is unique — and so are your goals. If this article has raised questions or sparked ideas for your business, we’d be happy to help. Reach out here to start the conversation.