Glossary
cash flow forecast
Also called cashflow forecast, cash flow projection, cash forecast
A cash flow forecast is an estimate of the money moving into and out of a business over a future period, and of the bank balance left at the end of each period.
The defining feature of a cash flow forecast is that it deals in money actually moving, not money earned or owed. An invoice you raised in March but collect in May is March revenue and May cash.
Why that distinction matters#
Businesses do not fail because they are unprofitable. They fail because they run out of cash, which can happen while they are profitable and growing. Growth in particular consumes cash: you pay for stock, staff and marketing before the resulting sales are collected.
What a good one includes#
Money in from customers, on the timing they actually pay rather than the date you invoice. Money out to suppliers and staff. Tax, which arrives in lumps: VAT quarterly, corporation tax annually, payroll taxes monthly. Capital purchases. Loan drawdowns and repayments, including interest. The closing bank balance for every period.
How far ahead#
It depends on the question. Thirteen weeks is the standard operational horizon for managing a tight position. Twelve months suits budgeting and covenant planning. Three to five years is what an investor or a lender funding an expansion will expect to see, and at that range the forecast has to come from a model rather than a projection.