Cash Flow Forecast

A cash flow forecast helps a business see whether it will have enough cash to meet its obligations. It lists expected receipts, such as customer payments, loans and asset sales, and expected payments, such as wages, rent, supplier bills, taxes and loan repayments.

For each period, the forecast starts with the opening cash balance, adds expected receipts, subtracts expected payments and arrives at a closing balance, which becomes the next period's opening balance.

Suppose a business expects to start June with 20,000, receive 45,000 from customers and pay 52,000 in costs. It would end June with 13,000. If July's forecast shows the balance going negative, the business can act in advance: chasing customers, delaying spending or arranging finance.

Cash flow forecasts are especially important for small and growing businesses, which can run out of cash even while profitable. They are only as good as their assumptions, so they are usually updated regularly as actual results come in.