How to create a cash flow forecast in 5 simple steps

Have you a growing business or just started a new venture? One of the first things you’ll need to get to grips with as a UK entrepreneur is managing your business finances.

One way to make sure your business is financially healthy and able to pay its bills is cash flow forecasting. This helps you keep track of money coming in and going out, and predict how much you’ll have in your bank account in the months and years to come.

In this handy guide, we’ll show you how to create a cash flow forecast in just a few simple steps. And, Wise Business is here to help you manage cash flow too. You can make the most of quick and secure payments, and seamless international transactions for your business.

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What is a cash flow forecast?

A cash flow forecast is a projection of the money going out and coming into your business over the next year. It’s based on your current or previous income (usually from sales or other revenue sources) and expenses, which help you to draw up realistic estimates for the months ahead.

What you want to be aiming for is a positive cash flow, which is where there’s more money coming in than going out.

The main purpose of cash flow forecasting is to prepare for the future. You can use it to:

• Identify any potential problems in the future (such as a shortfall of cash)
• Budget for big bills and expenses
• Give you confidence that you can pay staff and suppliers on time
• Ease stress worrying where money will come from
• Work out whether it's the right time to expand your business.

How to do a cash flow forecast in 5 simple steps

Here’s how to get started in creating a cash flow forecast for your business, in a few simple steps.

1: Decide on your forecasting period

The first step is to decide on the period you want to forecast - most businesses opt for weekly or monthly.

It’s worth bearing in mind that if you’re a brand new business, you might not have much data (i.e. sales records) to work with when coming up with your forecast. This may mean that the further forward in time you go, the less accurate your predictions may be.

You can use cash flow forecasting software tools, or simply start a spreadsheet.

2: List your income

Next, focus on money coming into the business - its revenue or ‘cash inflows’. Look at previous and current income, from sales, grants, investments or other sources of income.

Make sure to list each source of income separately, adding up the total at the end.

You can also look at last year’s sales figures to identify any trends. For example, sales increasing in the run-up to Christmas.

If you’re a brand new company and don’t have historical sales records, you’ll want to move onto the next step. This is to list your upcoming bills, so you know how much you need to earn to break even.

3: List your outgoings

With an idea of how much money is coming in each month, it’s time to list all of your monthly expenses. Include all of the following, on separate rows or columns:

• Rent for office space or other business premises
• Employee salaries - including payments to freelancers or contractors
• Cost of buying raw materials
• Cost of purchasing or maintaining assets
• Fees and charges for bank loans
• Spending on marketing and advertising
• Utilities bills
• Insurance premiums.

Add up the total at the end.

4: Find your estimated running cash flow

You should now have two figures - a total monthly income amount, and a total monthly expenses amount.

To find your running cash flow, take away your outgoings from your income. This will tell you whether you have a positive or negative cash flow.

If it’s negative, you can take steps to address it, such as finding ways to cut bills or increase sales.

5: Compare estimated cash flows to actual

Once you’ve done your cash flow forecast, make sure you go back at the end of each month and update it with actual figures. This will help make future forecasts more accurate.

Grow your company and go global with Wise Business

While you’re setting up your company and getting on top of its finances, it’s also worth making sure you’re set up with the right business account. Open a Wise Business account and you can hold and exchange 40+ at once.

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• No ongoing fees, minimum balance requirements or foreign transaction fees
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• Integrate with your favourite cloud accounting solutions
• Use the powerful Wise API for automation and streamlining workflow
• Take advantage of Wise Interest to make your funds work harder when you’re not using them (capital at risk).

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Sources used: N/A

Sources last checked on date: 27-May-2025