If you want to make a cash flow forecast, do not begin by staring at an empty spreadsheet.

Instead, start with your business story.

Where are you trying to go? What do you expect to sell? What activity needs to happen? What will that activity cost? And, crucially, when will the money actually enter or leave your bank account?

That is how we turn a plan for the business into a financial picture of the future.

Running out of cash can derail even a business with good ideas, customers and ambition. Therefore, a cash flow forecast gives us the opportunity to see what may be coming before we get there.

About this episode

In this episode, we work through the building blocks of creating your own cash flow forecast.

First, the process starts with the story in your head.

Next, we translate that story into activity, break the activity into manageable pieces and finally convert those pieces into numbers.

Think of them as your business Lego bricks.

Once those bricks are in place, we can see the likely pattern of cash coming in, cash going out and what may be left in the bank.

1. Start with your business story

Every forecast needs a destination.

So, where do you want the business to be in 12 months?

That destination might include:

a target level of profit
a particular cash reserve
a level of income for the owners
more customers
new services or products
a larger team
growth into a new market

Your goals do not all have to be financial. However, the financial forecast needs to reflect the activity required to achieve them.

A destination without a route is not much use.

Once we know where we want to go, we can start thinking about how we plan to get there.

2. Make your goals measurable

A useful goal needs to be something we can recognise when we reach it.

For example, if the aim is to build a stronger cash reserve, how much do we want?

Perhaps the goal is to increase profit. In that case, what level are we targeting?

Sales growth needs the same treatment. What does that growth actually look like in numbers?

“If you can’t measure, you can’t manage it.”

Putting a number against the goal gives us something that can eventually feed into the forecast.

3. Remember that forecasting is not fortune telling

We are not trying to predict the future with 100% accuracy.

After all, none of us has that crystal ball.

A forecast is our best view of the future based on:

our plans
expected activity
the capacity of the business
our marketplace
customers
costs
timing

However, the forecast is not a straitjacket.

It is a financial version of the journey we currently expect the business to take.

4. Start with what you expect to sell

One of the most important parts of the forecast is working out what the business expects to sell.

At first, keep it big picture.

For example, ask what total level of sales seems realistic based on:

your current capacity
past sales
repeat customers
contracts and enquiries in the pipeline
marketing activity
website or social media traction
changes in your market

You will rarely know the answer perfectly.

Nevertheless, there will always be some judgement involved.

The point is to create a reasonable assumption that we can test and improve later.

5. Get out the business Lego bricks

This is where we start turning the story into numbers.

For money coming into the business, think about three things.

How many?

First, what quantity are you expecting to sell?

That could mean:

hours or days of your time
courses
products
meals
monthly retainers
projects
customers

How much?

Next, what will you charge for each unit?

For example, if you expect to sell 100 units at £20 each, that gives us £2,000 of sales.

For a consultant, it might be 10 days at £500 per day. Meanwhile, for a restaurant, it could be the number of meals multiplied by the average spend.

When?

Finally, this is where sales become cash flow.

You may make the sale in August but not receive the money until September.

Therefore, payment terms matter.

“Timing is everything for a cash flow forecast.”

The forecast needs to show when the cash actually reaches the bank, not simply when the sale takes place.

6. Break sales into useful groups

If you have more than one source of income, separate them.

For example, a restaurant might distinguish between:

customers dining in
deliveries

Similarly, a marketing business might separate:

monthly retainers
one-off projects

An accountancy business might divide income by different types of client work.

As a result, grouping sales makes the forecast more useful because we can see which parts of the business are expected to generate the money.

7. Apply the same logic to costs

Sales activity often creates costs.

For example, a retailer needs to buy stock.

Restaurants need ingredients, while manufacturers may need raw materials or components.

So we need to translate that part of the business story into cash as well.

Again, ask the same questions:

How much resource do we need?
What will each unit cost?
When will we actually pay for it?

Then include the wider costs required to support the business.

These could include:

wages
marketing
rent
rates
utilities
software
loan repayments
other overheads

Once again, the timing of the payment belongs in the period when money leaves the bank.

8. Build the first draft before trying to fix it

One of the most important lessons in this episode is not to edit the story while you are building it.

Instead, get it out of your head first.

Write down the plan, translate it into activity and then turn that activity into numbers.

The first draft does not have to look pretty.

It simply needs to represent the business story as you currently understand it.

“Do not say, I can’t afford to do X. That decision comes later.”

If we start cutting things out before seeing the full financial picture, we may never understand what the original plan actually requires.

9. Turn the first draft into a monthly cash flow

Once we have the building blocks, we can place the figures into the months when the cash is expected to move.

For each month, we are essentially looking at:

Opening cash + cash coming in – cash going out = closing cash.

The result may show a surplus.

Alternatively, it may show a deficit.

A deficit is not automatically a failure. Instead, it is information.

It tells us that, based on the current story, the business may need more cash than it has available at that point.

That is exactly the type of information we want the forecast to reveal.

10. Only then start making decisions

Finally, once the first draft is complete, we can start challenging it.

If there is a cash shortage, ask:

Can we reduce a cost?
Does that spending need to happen at that time?
Can we negotiate a better supplier price?
Can we accelerate customer payments?
Are we buying too much stock?
Is a product or service losing money?
Can a purchase be delayed?
Do we need to review financing options?

This is where the forecast becomes a decision-making tool.

In other words, we build the story first and then decide what needs changing.

How far ahead should you forecast?

For the first big-picture exercise, look across roughly 12 months.

That gives us enough space to see the wider journey rather than getting trapped in the detail of one or two months.

Afterwards, once the assumptions are in place, break the forecast down into the months when cash will actually move.

For broader guidance on keeping your numbers useful over time, see our eight practical forecasting tips.

A simple process for making your cash flow forecast

Write down your business story.
Define where you want the business to be.
Make the goals measurable.
Estimate your overall sales activity.
Break sales into useful categories.
Work out how many units you expect to sell.
Decide the expected selling price.
Identify when customers are expected to pay.
Work out the costs required to support those sales.
Identify when those costs leave the bank.
Put everything into a monthly forecast.
Review the resulting cash surpluses and deficits.
Then start challenging and changing the plan.

If you prefer to see the building-block approach visually, you can also watch this I Hate Numbers cash flow video on YouTube.

FAQs

How do I make a cash flow forecast?

Start with your business plan and expected activity. Then estimate what you will sell, how much you will charge and when customers will pay. After that, do the same for costs and place the cash movements into the periods when they are expected to enter or leave the bank.

What information do I need for a cash flow forecast?

You need reasonable assumptions about sales volumes, prices, customer payment timing, supplier costs, overheads, planned investment and when payments will actually be made or received.

Should I start with a spreadsheet?

Not necessarily. Start with the business story and activity first. Once you understand what you expect to happen, the spreadsheet becomes the place where you translate that story into numbers.

Why does payment timing matter?

Because a sale and the cash receipt may happen in different months. Therefore, cash flow is concerned with when money actually moves into or out of the business.

What if my first cash flow forecast shows a deficit?

That gives you something to investigate. For example, you can review costs, timing, customer payments, stock, planned purchases and possible funding options before deciding how to adjust the business plan.

Does my cash flow forecast need to be accurate?

It needs to be reasonable and useful, not perfectly predictive. Forecasts are built from assumptions. Therefore, the important thing is to create the first version, review the results and update it as better information becomes available.

Episode Timecodes

00:00 – Why every business needs a cash flow forecast
00:45 – The building blocks of a forecast
01:08 – Business story, activity and Lego bricks
01:33 – Starting with goals and destination
02:18 – Making goals measurable
03:22 – Forecasting without a crystal ball
04:01 – Starting with sales activity
04:45 – How many, how much and when
06:03 – Why timing matters
06:30 – Translating sales into costs
07:10 – Estimating future sales
07:51 – Breaking income into categories
08:27 – Forecasting cash going out
09:28 – Building the first draft
10:14 – Reading monthly deficits and surpluses
11:21 – Using the forecast to make decisions

Related episodes and guides

Key takeaway

To make a cash flow forecast, start with the business rather than the spreadsheet.

First, write the story and define the destination.

Next, translate the plan into activity.

Then get out the business Lego bricks: how many, how much and when.

Apply the same thinking to the money going out.

Most importantly, build the first draft before trying to make the numbers look better.

Once the whole story is in front of you, the real value begins.

You can see where cash becomes tight, where it builds up and what decisions you may need to make next.

Further Support

If you need help building a cash flow forecast or turning your business plan into financial numbers, you can contact us for an initial chat.

You can also explore our free online business calculators for practical financial planning support.

Finally, for more practical finance and tax guidance, visit the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.

📘 Book
https://www.ihatenumbers.co.uk/i-hate-numbers-book/

🎧 Podcast
https://www.ihatenumbers.co.uk/i-hate-numbers-podcast/

🌐 Website
https://www.ihatenumbers.co.uk

How to Make a Cash Flow Forecast From Your Business Story