Forecasting & Budgeting

A cash flow forecast should include all expected cash inflows (sales receipts, loan proceeds, grants) and outflows (wages, rent, supplier payments, tax liabilities, loan repayments) over the forecast period. It should show the opening and closing cash balance for each period, highlighting any months where cash may run short so you can plan accordingly.

Under accruals accounting, income and expenses are recorded when they are earned or incurred, regardless of when cash is received or paid. Under cash basis accounting, transactions are recorded only when money changes hands. Most limited companies must use accruals accounting. Sole traders and partnerships with turnover below £150,000 can choose to use the cash basis, which is simpler but may not always give the most accurate picture of profitability.

Most businesses prepare rolling 12-month cash flow forecasts, updated monthly. However, businesses in periods of rapid growth or financial difficulty may benefit from weekly or even daily forecasts. The key is to review and update your forecast regularly to reflect actual performance and changing circumstances.

Cash flow forecasting helps you anticipate when money will come in and go out of your business, allowing you to plan ahead, avoid shortfalls, and make informed decisions about investment and expenditure. It is also essential when applying for finance, as lenders and investors want to see that you understand your future cash position.

Most businesses benefit from a rolling 13-week (3-month) cash flow forecast for day-to-day management, combined with a 12-month forecast for strategic planning. Businesses in growth phases, seasonal industries, or those seeking finance should maintain longer-term forecasts. The forecast should be updated regularly — ideally weekly or monthly — as actual figures become available.