A profitable business can still run into trouble on Friday if wages, rent and supplier payments all fall due before customers pay their invoices. That is why a good cash flow forecasting example matters. It turns abstract planning into something practical – a view of what cash is likely to come in, what is due to go out, and where pressure points may appear before they become urgent.
For many small and medium-sized businesses, cash flow forecasting sounds more complicated than it really is. In practice, it is simply a structured estimate of future cash movements over a set period, often weekly or monthly. The goal is not to predict the future perfectly. It is to make better decisions earlier, with fewer surprises.
A simple cash flow forecasting example
Let us take a small Manchester-based design and print business. It starts April with £18,000 in the bank. The business expects cash to come in from sales, but not all sales are paid immediately. It also has regular outgoings including rent, payroll, software, materials, VAT and loan repayments.
Here is a straightforward three-month forecast using cash movements rather than invoices raised.
April
Opening bank balance is £18,000. Cash receipts from customers are expected to be £22,000. Total available cash is therefore £40,000.
Cash payments include £8,500 for wages, £2,000 for rent, £6,000 for materials, £450 for software subscriptions, £1,200 for utilities and insurance, £3,500 for VAT, and £900 for a loan repayment. Total cash out is £22,550.
Closing cash balance for April is £17,450.
May
Opening bank balance is £17,450. Cash receipts from customers are expected to rise to £27,000, giving total available cash of £44,450.
Payments include £8,500 for wages, £2,000 for rent, £7,500 for materials, £450 for software, £1,200 for utilities and insurance, £900 for the loan repayment, and £6,000 for quarterly corporation tax set aside and paid. Total cash out is £26,550.
Closing cash balance for May is £17,900.
June
Opening bank balance is £17,900. Customer receipts are expected to dip to £19,000 because a large client usually pays 45 days after invoicing. Total available cash is £36,900.
Payments include £8,500 for wages, £2,000 for rent, £5,500 for materials, £450 for software, £1,200 for utilities and insurance, £900 for the loan, and £4,200 for VAT. Total cash out is £22,750.
Closing cash balance for June is £14,150.
At first glance, the business looks healthy. It remains cash positive throughout the quarter. But the forecast also reveals a downward trend in June. That does not mean the business is failing. It means management should ask sensible questions now rather than later. Is June a one-off dip? Are customer payment terms too long? Should stock purchasing be timed more carefully? Would a staged invoicing approach improve receipts?
What this cash flow forecasting example shows
The value of a forecast is not limited to the final number. It gives context.
In this example, monthly sales may look respectable on paper, yet the timing of receipts creates pressure. That is common in growing businesses. Revenue can increase while available cash tightens because stock, wages or tax payments need funding before customers settle their invoices.
A forecast also highlights the difference between profit and cash. A business might record strong sales in June, but if those invoices are not paid until August, they do not help June’s bank balance. This is where many owners get caught out. They are busy, sales are moving, and the business appears active, but cash in the bank tells a different story.
How to build your own forecast without overcomplicating it
The best forecast is the one you can keep updated. For most smaller businesses, that means something practical and realistic rather than a complex model that gets ignored after two weeks.
Start with your current bank balance. Then map expected cash receipts by the date you genuinely expect money to arrive, not the date you issue the invoice. After that, add all expected outgoings by the date they will leave the bank. Include regular costs such as payroll and rent, but also less frequent items like VAT, corporation tax, annual software renewals and loan repayments.
It helps to work in shorter time periods if cash is tight. A weekly forecast often gives better visibility than a monthly one, especially for start-ups, seasonal businesses or firms with uneven debtor collections. If cash is more stable, a monthly view may be enough for management planning.
Most importantly, keep assumptions grounded. If a customer normally pays in 45 days, forecasting receipt in 14 days because you hope they will pay sooner is not planning. It is wishful thinking.
Common mistakes that make forecasts less useful
One of the most common problems is confusing sales forecasts with cash flow forecasts. They are related, but they are not the same. A sales projection tells you what you expect to invoice. A cash flow forecast tells you when cash is likely to move.
Another issue is forgetting irregular payments. Taxes are a frequent culprit. VAT and corporation tax do not arrive as a surprise, yet many businesses fail to build them properly into their cash planning. The same applies to annual insurance, equipment purchases, bonuses and director drawings.
There is also a tendency to produce a forecast once, then leave it untouched. A forecast should be a live management tool. If a customer pays late, if costs rise, or if a new contract starts earlier than expected, update the numbers. A static forecast becomes outdated quickly.
Finally, some businesses are too optimistic about late payers. It is often better to build in a cautious assumption and be pleasantly surprised than to rely on best-case timing and face a squeeze.
When a more detailed forecast is worth it
Not every business needs a highly detailed model. It depends on your size, stage and trading pattern.
If you are a contractor or consultant with a small number of regular clients and low overheads, a simple rolling forecast may be enough. If you run a product-based business with stock, payroll, VAT, finance repayments and seasonal fluctuations, a more detailed version is usually worthwhile.
The same applies if you are applying for finance, planning to recruit, opening new premises or making a major investment. In those situations, a forecast should do more than show likely cash movements. It should also test whether the decision remains affordable if sales arrive later, costs increase, or margins narrow.
That is where scenario planning becomes useful. A base case gives your expected outcome. A cautious case shows what happens if receipts slip or costs rise. A stronger case helps you plan growth sensibly without overcommitting.
Using a cash flow forecasting example to improve decisions
A forecast is most useful when it changes behaviour.
If the example above showed the closing June balance falling close to zero instead of staying above £14,000, the business might need to act quickly. That could mean chasing overdue invoices earlier, negotiating supplier terms, delaying non-essential spending, reducing stock purchases, or reviewing whether prices still reflect rising costs.
In other cases, the forecast may give confidence to move ahead. If cash remains stable even after payroll, tax and loan commitments, the business might decide it can afford a new hire or equipment purchase. The point is not to become overly cautious. It is to make decisions with clear sight of the cash consequences.
For many owner-managed businesses, that clarity also reduces stress. Instead of checking the bank account reactively and hoping everything lines up, you have a forward view. Even when the forecast shows a difficult period ahead, knowing earlier gives you more options.
Why expert support can make a real difference
Forecasting sounds simple, but the quality of the result depends on the assumptions behind it. Small errors in payment timing, tax estimates or seasonal trends can lead to poor decisions.
This is where working with an accountant who understands your business can help. At Coombs Chartered Accountants, cash flow planning is not treated as a box-ticking exercise. The real value comes from helping business owners understand what the numbers are saying, where the pressure points sit, and what practical steps can improve control.
That might mean aligning bookkeeping with more accurate management information, setting aside tax liabilities more consistently, or reviewing debtor patterns so the forecast reflects reality rather than guesswork. Good forecasting is not about producing a perfect spreadsheet. It is about building confidence in your next decision.
A forecast should answer one simple question
Can your business meet its commitments as they fall due?
That is the heart of it. A useful cash flow forecast does not need flashy formatting or complicated formulas. It needs realistic timing, complete information and regular review. Once you have that, the forecast becomes more than a finance document. It becomes a practical management tool that helps you spot issues early, plan growth more carefully and run the business with less uncertainty.
If your numbers are busy but your cash feels unpredictable, that is usually a sign to look closer rather than push harder. A clear forecast often brings more relief than people expect.
