A customer says they will pay on Friday. Your supplier needs payment on Wednesday. On paper, the job is profitable. In your bank account, the timing is a problem.
That is the kind of problem a cash flow forecast helps you spot before it becomes urgent.
You can do this in a simple spreadsheet. The useful part is making realistic assumptions about dates, rather than producing a complicated document.
What does a cash flow forecast tell you?
A cash flow forecast estimates how much cash your business will have available at future points. It helps answer a practical question: will there be enough money when a payment is due?
It differs from a historical cash flow statement, which reports movements that have already happened. It also differs from a profit forecast. Profit measures revenue against the relevant expenses; cash planning follows receipts and payments.
If those terms are new, start with Small Business Finance Basics. This guide takes the next step: building a forecast you can update and use.
The formula is straightforward:
Closing cash balance = opening cash balance + cash received − cash paid.
For future periods, receipts and payments are estimates. Label them accordingly. A forecast is a planning tool, not proof that the business will achieve its sales targets.
Should you forecast weekly or monthly?
Choose a period that makes payment timing visible.
A freelancer with a small number of invoices might start with four weekly columns. A shop planning seasonal stock purchases may also need a monthly view covering the coming year. When cash is tight, check daily dates as well: a healthy Friday balance cannot pay a bill that falls due on Tuesday.
You do not need a perfect twelve-month prediction before starting. A useful first version can cover the next four weeks. Once that works, extend the horizon to match the decisions ahead of you.
Keep the same period boundaries throughout the sheet. For example, make each column Monday to Sunday, and place receipts and payments in the week when they are expected to clear.
Step 1: Establish your opening cash balance
Start with reconciled bank and cash records. Account for payments already committed but not yet reflected in the displayed balance, without counting them twice later.
Separate funds you can use from balances that are restricted, held for others or otherwise unavailable. Undrawn borrowing is not existing cash. If you include a planned loan drawdown, show it separately as financing and explain whether approval is confirmed.
Suppose Noor Studio, a fictional design business, has 1,200 currency units available at the beginning of Week 1. That is its first opening balance. The example uses generic units so the arithmetic works in any currency; it is not an industry benchmark or recommended cash reserve.
Step 2: List receipts by expected payment date
Use the dates when customers are likely to pay, not simply the dates when you issue invoices.
For every material expected receipt, write down the customer, invoice reference, amount, due date and expected collection date. Add a short note explaining your assumption. “Customer confirmed Friday” is more useful than an unexplained number in a cell.
Separate receipts from work already invoiced from receipts that depend on winning new business. A proposal is not a paid invoice. You can include uncertain future sales, but make that uncertainty visible and test a version without them.
If a customer usually pays two weeks late, assuming punctual payment because the contract says Net 30 makes the forecast less useful. Use the information you actually have, then take appropriate steps to improve collection.
Also decide how to show processing fees. If you forecast the gross customer payment, record the related fee as a payment. If you use the net settlement, do not subtract the same fee again. Use one consistent method.
Step 3: Put payments in the periods when they are due
Work from bills, contracts, payroll records and renewal schedules. Include the amounts that will leave the business account, rather than only the expenses shown in a profit report.
Typical payment categories include:
- Suppliers, materials and contractors.
- Rent, utilities, insurance and software.
- Wages and other employment payments where applicable.
- Taxes and statutory payments when due.
- Equipment purchases and agreed debt repayments.
- Owner payments recorded according to their actual nature.
A laptop purchase can create a large immediate cash payment even when its accounting expense is spread over time. Similarly, a loan principal repayment uses cash but is not the same as an operating expense. These distinctions are why copying a profit forecast directly into a cash sheet can produce the wrong answer.
Keep tax treatment consistent. If you include taxes collected from customers in receipts, include the relevant remittances when due. Confirm the rules and dates for your location with an appropriate professional; the example below does not model a jurisdiction's tax system.
Step 4: Calculate a four-week forecast
Noor Studio expects the following receipts and payments. In this simplified example, each week's receipts arrive before that week's payments; check the actual dates separately in a real business.
| Cash movement, in units | Week 1 | Week 2 | Week 3 | Week 4 |
|---|---|---|---|---|
| Opening cash | 1,200 | 1,100 | 1,900 | 1,100 |
| Expected customer receipts | 800 | 1,500 | 400 | 1,300 |
| Expected payments | 900 | 700 | 1,200 | 800 |
| Net cash movement | −100 | 800 | −800 | 500 |
| Closing cash | 1,100 | 1,900 | 1,100 | 1,600 |
Week 1 closes at 1,100: 1,200 + 800 − 900. That 1,100 becomes Week 2's opening balance.
Across the four weeks, receipts total 4,000 and payments total 3,600. Cash therefore increases by 400, from 1,200 to 1,600.
Notice that the lowest weekly closing balance is 1,100, not the final 1,600. You need to examine the low points as well as the end result. Within-week timing could produce an even lower balance, which this summary would not show.
Step 5: Test what happens if a customer pays late
Now assume a 1,000-unit payment included in Week 2's receipts arrives in Week 4 instead. All other receipts and payments stay the same.
| Cash movement, in units | Week 1 | Week 2 | Week 3 | Week 4 |
|---|---|---|---|---|
| Opening cash | 1,200 | 1,100 | 900 | 100 |
| Expected customer receipts | 800 | 500 | 400 | 2,300 |
| Expected payments | 900 | 700 | 1,200 | 800 |
| Net cash movement | −100 | −200 | −800 | 1,500 |
| Closing cash | 1,100 | 900 | 100 | 1,600 |
The final balance is still 1,600. Total sales and total cash received over the four weeks have not changed. But Week 3 now closes at only 100 units.
A modest unexpected bill could create a shortage. That is a very different situation from the comfortable-looking month-end total.
You might respond by confirming the payment date earlier, postponing a discretionary purchase or discussing an agreed schedule with a supplier. Do not silently delay an agreed payment and assume the problem is solved.
If the 1,000-unit receipt moves beyond Week 4 entirely, the four-week closing balance falls to 600. Running both versions helps distinguish a timing problem within the forecast from a payment that falls outside it.
What should you do if the forecast goes negative?
A negative number means your projected payments exceed the cash available under the assumptions you entered. It does not automatically mean the business is insolvent, but it needs prompt attention. Legal duties around financial distress vary by jurisdiction.
First, check the inputs. Look for duplicate bills, missing receipts and incorrect dates. Confirm whether uncertain income has been treated as guaranteed.
Next, identify the size and timing of the gap. A shortfall of 200 next week needs a different response from a recurring monthly gap of 2,000.
Consider actions within your control: invoice completed work promptly, follow up overdue accounts, agree deposits for future work where appropriate, review unnecessary spending and discuss payment arrangements before a deadline is missed. Record any arrangement accurately in the forecast only when it is agreed.
If financing is necessary, compare its costs, repayment obligations and suitability. Do not insert an unapproved loan simply to make the closing balance positive. If essential payments cannot be met, seek qualified local advice promptly rather than relying on a spreadsheet to decide legal obligations.
How much cash buffer should you plan for?
There is no single percentage or number of months that fits every business.
Look at essential commitments, income volatility, customer concentration, seasonal stock needs and the time between paying suppliers and collecting customers. Then test realistic disruptions. What happens if the largest customer pays late, a key machine needs repair or sales fall below the plan?
A reserve target becomes more meaningful when it is tied to those circumstances. Avoid treating the lowest positive number in your base forecast as evidence that you have enough protection.
For Noor Studio, the delayed-payment scenario exposes a 100-unit low point. Whether that is adequate depends on commitments and risks outside the example. The point of the exercise is to reveal that question early.
Five mistakes that make a forecast misleading
Counting invoices as immediate receipts. An invoice can represent work earned without cash having arrived. Use a realistic collection date.
Counting the same money twice. A transfer between your own business accounts is not new customer income. Existing cash should not appear again as a future receipt.
Omitting irregular payments. Annual subscriptions, insurance renewals, equipment purchases and scheduled taxes can be easy to miss when you focus only on recurring monthly costs.
Ignoring the owner's cash needs. Record intended owner payments with appropriate classification. A forecast that leaves them out may overstate the cash available for other decisions.
Changing every assumption to preserve a positive balance. A forecast should expose a problem, not hide it. Keep a cautious scenario alongside the main plan.
How often should you update it?
Choose a short weekly review and update more frequently when circumstances change quickly.
Replace estimated receipts and payments with actual amounts for the completed week. Reconcile them against your records, explain important differences and refresh the remaining weeks. Add a new future week so the planning horizon keeps moving forward.
If a customer pays 300 instead of the expected 500, the remaining 200 does not disappear. Update its expected date or mark it uncertain. If you paid a supplier early, remove that future payment from the next period to avoid counting it again.
Keep a copy of the earlier forecast. Comparing assumptions with outcomes can show whether you consistently underestimate costs or overestimate how quickly customers pay.
A simple layout you can copy
Use one column for each week and rows for opening cash, customer receipts, other receipts, supplier payments, overheads, payroll if applicable, taxes, debt payments, equipment and owner payments. Finish with total receipts, total payments, net movement and closing cash.
Keep a separate assumptions area with invoice references, expected dates and uncertain amounts. Link every opening balance after the first to the preceding closing balance.
Before using the result, check three things: does the first balance reconcile to your records, does the final balance equal opening cash plus all receipts minus all payments, and have you checked the dates inside the weakest week?
Those checks will do more for a first forecast than decorative charts.
Common questions
Can a profitable business have negative cash flow?
Yes. Customers may pay after suppliers, payroll or equipment purchases need funding. A cash forecast shows the timing; profit alone does not.
Is a budget the same as a cash flow forecast?
No. A budget sets out a plan for revenue and costs. A cash forecast estimates when money will enter and leave the business. They should be consistent, but their timing and classifications may differ.
What if I have no trading history?
Build estimates from documented commitments, supplier quotes, realistic sales assumptions and payment terms. Label uncertainty and test a slower-sales or later-payment scenario. Update the forecast as real transactions arrive.
Can I include borrowing?
Show expected borrowing separately from customer receipts. Explain whether it is approved, when cash becomes available and when repayments leave the account. Borrowing can improve cash without improving trading profit.
Your next step
Gather your current balance, unpaid customer invoices and bills due over the next month. Build four weekly columns, calculate each closing balance and delay your largest expected receipt in a second version.
Then choose one action based on the weakest period. That turns a forecast into a decision you can use.
Return to the Business Learning Hub for the wider learning path, or revisit Small Business Finance Basics if you need to separate revenue, profit and cash before building your sheet.
Sources and scope
General business education, not personalized financial, legal or tax advice. Noor Studio and all figures are fictional. The tables and scenarios are original worked examples. No particular reserve level, revenue outcome or financing decision is recommended.
Primary references checked 31 October 2026:
- Australian Government — Set up a cash flow statement: forecast structure and cash-balance definitions.
- Australian Government — Guide to managing cash flow: records, payment terms and monitoring cash pressure.
- U.S. Small Business Administration — Manage your business: bookkeeping and the distinction between cash and accrual records.
Country-specific rules in those resources apply to their respective jurisdictions. Confirm your own local accounting and tax requirements. Read BizCryped's editorial policy for our approach to sources and corrections.
