HomeArrow RightBlogArrow Right

What is a Cash Flow Forecast?

May 12, 2022

What is a Cash Flow Forecast?

Ariel Gottfeld

Ariel Gottfeld

If you run your own business, you may be making sales, but that doesn't mean that your business is financially healthy. Cash flow is the main indication of financial health. If you're scratching your head, and asking yourself these questions, this guide is for you:

  • What is cash flow?
  • What is a cash flow forecast?
  • How often do you need to run forecasts?
  • How to improve cash flow?

Let's start with two of the most fundamental questions you may have.

Cash flow forecast in business

In effect, you use the cash flow forecast model with your historical and current data to:

  • Forecast cash flow
  • Increase planning accuracy
  • Make smarter business decisions

The formula for cash flow forecasts usually uses historical sales, considers projected sales or typical growth and expenses to determine your cash flow as accurately as possible.

What is cash flow?

The definition of cash flow forecast is simple: projected income minus expenses. For example, if you generate $100,000 in sales and have $75,000 in expenses to keep operations going and buy inventory, you will have $25,000 in potential cash flow.

We say "potential" cash flow because:

  • Invoices may go unpaid
  • Invoices can take time to pay

For example, if you're running simple cash flow forecasts each month, you may find that you have $50,000 in billables, $35,000 in expenses and only $40,000 in billables was paid. In this case, your cash flow is really $40,000 - $35,000 in expenses because you don't have access to the money if the invoice is pending.

Cash flow and potential cash flow are different when invoices go unpaid because you remain unsure of when you can leverage the funds.

Positive and negative cash flow: what's the difference?

If you're unsure of how to analyze cash flow forecasts, they can be extremely complex and filled with information. The key most important thing is to look at both positive and negative cash flow.

Thankfully, your cash flow can only be positive or negative, or you can break even where your realized income matches your expenses.

What is negative cash flow?

Negative cash flow is common in the initial stages of business. For example, you may have produced 100,000 widgets at the cost of $1 million and only have sales of $100,000. In this case, you have $900,000 in negative cash flow.

Essentially, you're spending more cash than is coming into your business.

What is positive cash flow?

Positive cash flow is the polar opposite of negative cash flow. Instead, you may spend $1 million on production and for utilities, yet you bring in $1.5 million. In this case, you have $500,000 in positive cash flow.

What is a cash flow forecast in business? It is an indicator of your business's financial health.

You have enough clients and customers buying your products or services that you have real net income. Businesses use cash flow for many things, such as expanding their operations or investing in new technology.

If you have negative cash flow, you will need to:

  • Find new sources of capital, such as taking out a loan
  • Take out lines of credit
  • Reduce overhead, which may mean layoffs
  • Etc.

And it's important to also know what these forecasts look like in the first place.

What does a cash flow forecast look like?

What does a cash flow forecast look like?

Forecasts are filled with numbers and data relating to your sales and expenses. Charts and graphs are included to make viewing these figures much easier. Actually, let's see what's in these forecasts.

What is included in a cash flow forecast?

Your cash flow forecast can include a multitude of data, such as:

  • Cash sales
  • Cash received from accounts receivable
  • Operation subtotals
  • Current notes
  • Long-term liabilities
  • Sales of other assets
  • Total money received
  • Money spent (broken down into detail)
  • Totals for cash used
  • Cash flow

In effect, you'll find that a traditional forecast will outline all sources of income, income yet to be received, total expenses and then expectations of cash flow for a given time period. You may also see different expected cash flows based on growth projections.

Cash and expenses are often broken down incrementally by week or month.

Forecasts may show you the cash flow totals for each period by each week or month. However, different forecast software will display information differently and with varying degrees of depth.

How often do you need to make a cash flow forecast?

Ideally, you'll update forecasts weekly, especially in the initial stages of a business where growth pains and lack of funds can lead to insolvency. A weekly forecast, done automatically, will provide you with a routine reminder of your business's financial health.

Cash flow forecast templates to simplify your work

Do you want to know how to create a cash flow forecast quickly? Templates. A template is a fast and organized way to:

  • Plug in the correct data
  • Allow for the template to handle calculations
  • View your cash flow forecasts

However, as your business grows, it's easier to use software rather than an Excel template. Software that integrates with your business's accounting platforms will empower you to offload resource-intensive forecasts.

Why is a cash flow forecast important?

Why is a cash flow forecast important?

Businesses often make the mistake of ignoring the importance of cash flow forecasts. Unfortunately, this is a costly mistake, which can lead to making poor business decisions. Here’s why forecasts are so important:

  • Learn of current cash positions
  • Analyze current and future expenses
  • Understanding the probability of reaching lofty forecasts

Additionally, when you know the true financial position of your business, you'll know when and if you can afford to make certain decisions. For example, forecasts can indicate when the right time is to hire new employees or open new offices.

Otherwise, you may cash starve the business without knowing what future financials will be.

Benefits of cash flow forecasting

Sales forecasts show just part of your business's true health. Instead, cash flow forecasts help you in many ways, such as:

  • Predicting when you'll have a surplus to invest in your business in new, innovative ways
  • Understanding where cash flow bottlenecks occur
  • Taking action when cash shortages are projected to occur
  • Securing financing before cash flow issues negatively impact business
  • Creating accurate what-if scenarios that are based on cash flow projections

You can use forecasts to know when and how to make crucial business decisions. For example, if you know that the next quarter will lead to a massive influx of cash, you can prepare to restock inventory or bring on more employees to exceed business expectations.

How to improve your cash flow

Improving cash flow is possible, but it's often more challenging to do without drastic changes in your business. A few of the ways you can begin improving your cash flow are:

  • Find ways to cut back on expenses. Negotiate deals with suppliers, begin outsourcing or learn of additional ways to start saving more money.
  • Generate more sales. Without sales, you won't improve your cash flow. Begin offsetting some cash flow issues by boosting cash sales. Perhaps incentives for cash customers or paying invoices quickly can help.
  • Push clients to pay invoices faster. Client analysis empowers you to learn which customers are slowing your business's growth. You'll boost cash flow if you can change invoice terms or even drop customers that often pay late.

If you want to improve your cash flow, tough decisions must be made. However, if you follow a LEAN approach to business, you'll improve operations and cash flow at the same time.

How can automation streamline cash flow forecasting?

Automating your cash flow forecasting is possible if you use a product like Cash Flow Frog. First, you'll need to be willing to integrate the platform with your accounting software, such as Xero or QuickBooks.


Cash flow is dependent on your expenses and income. Integrating your platforms together will allow you to run accurate forecasts and don't require human input. Any time that manual input is necessary, it slows down the automation of your cash flow forecasts.

Cash flow forecasting solutions with Cash Flow Frog software

At Cash Flow Frog, we've built our platform from the ground up to help businesses, just like your own, uncover their cash flow 24/7. You can view your cash flow in real-time and integrate Cash Flow Frog online with all of the leading accounting platforms.

We empower your decisions and make it easier than ever before to know the true financial health of your business. And we do it all behind the scenes without requiring you to spend hours each week plugging data into your cash flow template.

We make it simple to leverage your business's financial health to grow your business. If you don't know your cash flow, you're operating in the dark.

Sign up for Cash Flow Frog today, and in just a few minutes, you'll be running cash flow reports and forecasts.

Related posts:

You may be interested:


Trusted by thousands of business owners
Start free trial now