How far ahead should a cashflow forecast run?

Thirteen weeks in detail and twelve months at a higher level suits most small businesses. The thirteen-week window is short enough to forecast weekly with real accuracy and long enough to give you time to act — you can chase debtors, delay discretionary spend or arrange funding inside a quarter. The twelve-month view catches the annual lumps: Corporation Tax nine months and a day after your year end, the January Self Assessment hit, insurance renewals, and any seasonal trough. If your business is seasonal or you are carrying debt, run the twelve-month view monthly rather than glancing at it once a year.

How often should the forecast be updated?

Monthly at minimum, weekly if cash is tight or the business is growing quickly. The update matters more than the original build, because the value comes from comparing what you predicted with what actually happened and understanding the difference. A forecast that is never revisited quietly becomes fiction within about six weeks. Set a recurring half hour in the diary, roll the window forward, and correct the assumptions that proved wrong. Businesses that do this consistently develop a genuine feel for their own numbers, which is worth considerably more than the spreadsheet itself.

What's the difference between a cashflow forecast and a profit forecast?

A profit forecast measures performance: sales earned less costs incurred, regardless of when money moves. A cashflow forecast measures liquidity: when money actually lands in and leaves the bank. They diverge because of invoice timing, stock, VAT you are holding on HMRC's behalf, loan capital repayments, dividends and asset purchases. A business can be profitable and insolvent at the same time — profitable on paper while unable to make payroll. Both matter, and if you only monitor one you will be blindsided by the other. Most owners track profit and neglect cash.

What should I do if the forecast shows I'll run short?

Act while you still have options, which is exactly why the forecast exists. In rough order of preference: chase overdue invoices and tighten credit control; agree a short payment holiday or extended terms with your largest suppliers before you miss a payment rather than after; defer discretionary spend; and speak to HMRC about a Time to Pay arrangement if the pressure is a tax bill — they are far more accommodating before a deadline than after it. Arranging finance is quicker and cheaper when you are three months out. Doing nothing and hoping is the only option that always makes it worse.

Do I need special software, or will a spreadsheet do?

A spreadsheet is genuinely fine for a straightforward business, and one you understand beats software you never open. Its weakness is that it needs manual updating, which is where forecasts quietly die. Cloud accounting software with a forecasting layer pulls actuals through automatically, so the comparison between forecast and reality happens without effort — which is the part most owners skip. If you already run Xero or FreeAgent, use what is there before buying anything else. The decisive factor is not the tool; it is whether someone looks at the output every month and acts on it.

How to read a cashflow forecast

Most business owners' eyes glaze over the moment a spreadsheet lands in the inbox labelled “cashflow forecast.” That's a shame, because it's one of the most useful things you can look at — the difference between finding out about a cash problem three months before it happens and finding out on the day it happens. You don't need to be a numbers person to read one properly. You need to know which four or five figures actually matter, and which ones are decoration.

What a forecast is actually for

A forecast isn't trying to predict your profit. Profit and cash are different things, and it's entirely possible to be profitable on paper while running out of money in the bank — because cash gets tied up in stock, in unpaid invoices, or in a tax bill landing at an awkward moment. A cashflow forecast is about timing: when money is expected to move, so you can see the gaps before they open up.

That distinction has a practical consequence. A profitable month can be a terrible cash month, and a loss-making month can look fine in the bank. Neither statement is wrong; they are measuring different things. If you only ever look at one of them, you are flying on one instrument.

The four numbers to look at first

Ignore the detail for a moment and find these:

Opening balance — what's in the bank at the start of the month.
Closing balance — where the month is expected to end.
The lowest point within the month — the number most forecasts bury, and the one that actually tells you whether you'll get through.
Your facility headroom — the overdraft or funding line you could draw on, and how much of it is already used.

The closing balance tells you where you land. The low point tells you whether you get there without bouncing something on the way.

A worked example: the month that looks fine and isn't

Take an agency with a 30 September VAT quarter end, opening October with £42,000 in the bank. October's expected receipts are £58,000, of which £36,000 is a single large client who pays on the 28th. Payments due are rent of £3,500 on the 1st, the VAT bill of £11,400 on 7 November, supplier payments of £18,000 between the 10th and the 20th, and payroll of £31,000 on the 28th.

Hold on — that VAT bill. A quarter ending 30 September is due one calendar month and seven days later, so it leaves the bank on 7 November, not in October at all. Get that wrong in the forecast and October looks £11,400 worse than it is while November looks fine. Timing errors like this are the single most common fault in a homemade forecast.

With the VAT correctly placed in November, October's closing balance is £42,000 plus £58,000 in, less £3,500 rent, £18,000 suppliers and £31,000 payroll — a closing balance of £47,500. That reads as a comfortable month.

Now look at the low point. On the morning of the 28th, before the big client pays, the position is £42,000 plus the other £22,000 of receipts, less £3,500 and £18,000 — that's £42,500. Payroll of £31,000 goes out the same day, leaving £11,500. Still fine, but a long way from £47,500. And if that client pays eight days late, as large clients routinely do, you are running the last week of October on £11,500 with the next payroll five weeks out. Add the VAT payment on 7 November before the money lands and the picture is genuinely uncomfortable.

The closing balance never showed you any of that. The low point did.

Reading the trend, not just the total

A single month tells you very little on its own. What matters is direction over six to twelve months. Is the closing balance broadly stable, climbing, or quietly eroding? A forecast showing cash shrinking by £3,000 a month is telling you something important even though no individual month looks alarming. Catching that early gives you months of runway to act rather than weeks, and the options available to a business with six months of visibility are far better than those available to one with six days.

It also helps to separate the forecast into three parts: income already invoiced, income you're reasonably confident of but haven't billed, and fixed outgoings that happen regardless of trading. That split shows how much of the forecast is solid ground and how much is assumption.

Put the tax dates in, properly

The lumps that break forecasts are nearly always tax, and the dates are entirely knowable in advance. Set them out on the actual days they leave the bank:

VAT — one calendar month and seven days after the quarter end, so a 31 March quarter is paid by 7 May.
PAYE and National Insurance — the 22nd of the following tax month if you pay electronically, the 19th by post.
Corporation Tax — nine months and one day after the accounting period end, so a 31 March year end is paid by 1 January.
Self Assessment — 31 January for the balancing payment and the first payment on account, and 31 July for the second. If you draw dividends, January is usually your worst cash month of the year, and it is the one most owners forecast least carefully.

If you or your landlord clients came into Making Tax Digital for Income Tax on 6 April 2026 — that is, qualifying income above £50,000 — the quarterly updates themselves don't move cash, but they do mean your figures are current four times a year rather than once. That makes an accurate rolling forecast considerably easier to maintain.

Where forecasts usually go wrong

The most common failure is treating a forecast as a document rather than a habit. One built in January and never touched again is only as accurate as January's assumptions, and those are usually wrong within a few weeks. The forecasts that earn their keep get compared against what actually happened, every month, so the picture stays current instead of becoming fiction by March.

The second failure is optimism on timing. If your terms are 30 days and your customers actually pay in 47, forecast 47. Take your last six months of invoices, work out the real average gap between invoice date and payment date, and use that number rather than the one on your invoice template. It is usually a sobering exercise and it makes the forecast dramatically more useful.

The third is forgetting that VAT you've collected isn't yours. On a £58,000 month of standard-rated sales, roughly £9,667 of that is VAT you are holding on HMRC's behalf. A bank balance that looks healthy on the 20th of the month can be almost entirely someone else's money.

Who should be looking at it

A forecast only the accountant sees isn't doing its job. It is most useful in the hands of whoever makes the day-to-day calls — whether to place a large order, whether now is the moment to hire, whether a supplier payment can wait a week. That doesn't mean building it yourself from scratch. It means understanding it well enough to act on it, which is a much lower bar than constructing one.

Set a standing half hour each month: open the forecast, compare last month's prediction to what actually happened, ask why the difference arose, and roll the window forward. Three months of doing that and you'll trust the numbers. That is the point at which a forecast starts changing decisions.

This is exactly what we build into management accounts — rolling cashflow reporting alongside profit and loss, so you see where things are heading each month rather than after the event. Our cashflow and budgeting page covers how we set it up, and the cashflow forecasting guide walks through building one. If your current view of cashflow is a spreadsheet nobody has opened since it was built, that's worth fixing before it becomes a bigger problem than it needs to be.

How to read a cashflow forecast (without glazing over)