How to do a cashflow forecast for your UK small business

A cashflow forecast shows you exactly when money will arrive in your bank account and when it will leave — day by day, week by week, or month by month. Done correctly, it gives you a 30, 60, or 90-day view of your financial position before problems develop, not after they have already cost you money.

This guide walks through a complete cashflow forecast from scratch, explains the most common mistakes, and shows you how to build a forecast that is actually useful rather than a compliance exercise that lives in a spreadsheet no one opens.

What a cashflow forecast is not

A cashflow forecast is not a profit and loss statement. The P&L shows revenue when it is earned and costs when they are incurred — regardless of when cash moves. A cashflow forecast shows only actual cash movements: when money lands in your account and when it leaves. Depreciation does not appear in a cashflow forecast because it is not a cash movement. An invoice raised but not yet paid does not appear as income until the payment is received.

Understanding this distinction is the single most important concept. It is why a profitable business can run out of cash and why your accountant’s P&L and your bank statement tell different stories.

Step-by-step: building a 13-week cashflow forecast

Thirteen weeks (one quarter) is the most practical horizon for a rolling cashflow forecast. Long enough to identify structural problems; short enough that the data is still meaningful. Build it in a spreadsheet with columns for each week and rows for each type of cash movement.

Step 1: Opening cash balance

Start with the actual balance in your business bank account today. Not the balance after pending transactions, not the balance after the invoice you expect to be paid tomorrow — the actual cleared balance right now. This is your baseline.

Step 2: Cash inflows

List every source of cash entering the business. For each source, identify when the cash will actually arrive, not when you invoice it:

• Customer receipts: Take your outstanding debtors aged analysis. Apply your average debtor days by customer to forecast when each invoice will be paid. Do not assume all invoices pay on time — build in your actual payment history.
• New sales: Estimate new sales in each week based on your pipeline. Apply your average debtor days to determine when cash from new sales will arrive.
• Other income: Any grants, HMRC repayments (VAT refunds, R&D tax credits), asset sales, or financing draws.

Step 3: Cash outflows

List every payment leaving the business. Be specific about timing — the exact date matters:

• Payroll: The exact date wages hit the account each month. Include employer NI and pension payments (which often fall on a different date).
• Supplier payments: Work from your creditors ledger. Apply your actual payment terms with each supplier. Note any invoices already overdue.
• HMRC — VAT: Quarterly payments due one month after the end of each VAT quarter. If you are on quarterly VAT, you know the exact dates for the next 12 months.
• HMRC — Corporation tax: Due 9 months and 1 day after your company year end (or quarterly instalments for larger companies).
• HMRC — PAYE/NI: 19th of the month following the payroll month (22nd if paying electronically).
• Loan repayments: Fixed date, fixed amount. Easy to forecast.
• Rent/lease: Fixed date, fixed amount.
• Other fixed costs: Insurance, subscriptions, utilities — check direct debit dates, not billing dates.
• Capital expenditure: Any planned equipment purchases or facility investments.

Step 4: Calculate weekly closing balance

For each week: Closing balance = Opening balance + Cash in − Cash out. The closing balance becomes next week’s opening balance. Do this across all 13 weeks. You will find your lowest cash point — the week where the balance is at its minimum. This is the most important number in the forecast.

Step 5: Identify and plan for the lowest cash point

If the lowest cash point is negative, you have a problem to solve before you get there. If it is uncomfortably close to zero, you have a risk to manage. Your options:

• Chase debtors earlier to accelerate receipts into the tight week
• Negotiate extended payment terms with suppliers for outflows due in that week
• Draw on an existing overdraft or credit facility
• Delay a non-essential capital expenditure
• Invoice faster to bring receipts forward

Common mistakes in cashflow forecasting

• Using invoice date not payment date: Forecasting cash in on the invoice date rather than the expected payment date overstates your cash position by exactly your debtor days. On £500,000 annual revenue and 45 debtor days, this misrepresents your cash by approximately £62,000.
• Ignoring VAT: If you are VAT-registered on standard accounting, you collect 20% VAT on your sales but must pay it to HMRC quarterly. Failing to include quarterly VAT payments produces a forecast with large unexplained cash drops every three months.
• Being too optimistic about sales: Sales forecasts are typically optimistic. A cashflow forecast based on 100% of your pipeline converting at the expected time will overstate cash. Apply a probability adjustment: 90% on deals signed, 70% on verbal commitment, 40% on active discussion.
• Monthly not weekly: A monthly cashflow forecast misses the timing mismatch that causes most problems. Payroll might be on the 25th, a major customer might pay on the 28th, and a supplier payment might be due on the 27th. A monthly forecast shows everything arrives together; a weekly forecast shows the three-day gap that tips you into overdraft.
• Not updating it: A cashflow forecast built once and not updated becomes fictional within weeks. It must be updated at least weekly with actual receipts and payments. The discipline of comparing forecast to actual each week also teaches you where your assumptions are wrong and improves future accuracy.

The signs your cashflow needs immediate attention

• You regularly check your bank balance before approving supplier payments
• You delay payroll or pay it in tranches
• You pay HMRC late (penalties and interest add up quickly)
• Your overdraft is consistently at its limit
• You issue invoices and then immediately chase payment because you need the cash

Any one of these is a cashflow problem. All of them together is a cashflow crisis that needs immediate professional input.