Money is essential to the continued existence of your business. This means that you need to know where that money is coming from, and what you’re going to be spending it on. 

A smart business owner will even be able to know this information ahead of time –– they can predict both their earnings and spending for the coming weeks and months. This is known as cash flow forecasting, and it’s a hugely important part of running a business.


In this article, we’ll look at a few different uses for cash flow forecasts, such as:

  • What is a cash flow forecast?
  • Why is a cash flow forecast important?
  • How does Countingup help with forecasting?

What is cash flow forecasting?

Your company’s cash flow refers to the movement of money through the business. A cash flow will include all the sources of revenue your business has as well as all the things you spend that money on. You want your business to have a positive cash flow, which means that the amount of money coming in is greater than the amount spent. 

A cash flow forecast is a way of presenting your expected cash flow for the coming weeks or months. You can create forecasts using several different methods: established businesses use their older financial records to predict what they’re going to earn and what they’re going to spend. 

If you’re new to running a business, you may need to do some research on your target market (which is the group of people you think will buy your products) or use competitor’s accounts to predict sales revenue. You should have a pretty good idea of your spending, though: look at things like the rent on your business premises and the amount you spend on ordering stock.

Why is a cash flow forecast important?

Planning ahead for cash gaps

A cash gap is a period in your business when you have a shortage of incoming cash. These periods require you to manage your finances carefully, so knowing ahead of time when you’re going to encounter a cash gap is very useful.


Cash flow forecasts can provide this knowledge, as they will show you when your sales are going to dip or when your spending is going to rise. If your cash flow forecast shows a cash gap in your future, you should put plans in place to account for it, such as reducing spending or using savings to cover the loss in sales revenue.

Keep track of late payments and bills

If your business relies on invoices to remind customers of what they owe and when they need to pay, you may encounter customers who pay late on occasion. This is understandable once or twice, but can become a bigger problem if it happens consistently.

The first step in solving the problem of late-paying customers is identifying them –– you can do this easily with the help of a cash flow forecast. Since the forecast will show you where all of your expected revenue is coming from, you can refer to it when you’re unexpectedly short of cash to identify which payments were received and which were not.

Similarly, if you find yourself with an unexpected excess of cash, you can refer to the cash flow forecast for answers. It will also show you what you planned to spend your money on that month, and how much you were spending. Using this list, you can identify any bills you’re still to pay and then pay them. 

Helps identify excess cash

Having more money than expected is a good problem to have when you’re a small business, but you need to make sure the excess cash you have really is an excess.

A cash flow forecast will outline all the stock you need to buy, the bills you need to pay, and the money you need to set aside for next month. It will also have details of all the money you expect to make over the coming month. Using these two pieces of information (your incoming and outgoing money) you can determine if your excess is actually from a bill you’ve not paid, or is just sales revenue you expected to make anyway. 

Minimise unplanned spending

A healthy cash flow is when you make more than you spend. Maintaining a healthy cash flow like this is essential to the survival of your business, as a negative cash flow (i.e. one where you spend more than you make)  can quickly lead to bankruptcy. 

If you have a cash flow forecast, you’ll be able to see the amount of money you’re planning to spend in the coming month. If you know exactly what you plan to spend your money on, it will discourage you from making any unplanned purchases.

A particularly thorough cash flow forecast might show this information as well as the amount of money your business can afford to spend this month. This is helpful as it provides you with a guideline in case of emergency situations where you’ll need to go over your planned spending for the month.

Using Countingup to help with forecasting

In order to create a high-quality cash flow forecast, you need to have a very clear understanding of how your finances work. This is easiest when all of your financial data is in one place, so you might consider using the Countingup app to make forecasting easier. 

Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place. With features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 
Find out more here.

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