Contents
A cash flow forecast is a table that estimates a company’s cash inflows and outflows month by month over the next 12 months. It calculates the expected cash balance at the end of each period, so you can anticipate funding needs and spot surpluses to invest.
Key takeaways
- A cash flow forecast works with the dates cash comes in and goes out, and with VAT-inclusive amounts.
- It is built in six steps, from the opening cash balance to forecast-versus-actual tracking.
- Three scenarios (cautious, central, optimistic) make the forecast genuinely useful for decisions.
What is a cash flow forecast for?
A cash flow forecast answers three practical questions:
- When will I need cash, and how much? It puts a number on working capital needs and tight months well in advance.
- When will I have a surplus? It flags the periods when spare cash can be invested or put to work.
- Can I afford this project? It shows how a hire, an investment or a large order will affect your cash.
It is also the document banks and investors ask for when they assess a funding request.
Cash flow forecast vs cash budget: what is the difference?
The two terms are often confused, but they do not play the same role:
| Criterion | Cash budget | Cash flow forecast |
|---|---|---|
| Purpose | Set an annual framework for total receipts and payments | Predict actual cash flows, month by month or week by week |
| Level of detail | Broad totals, not tied to a bank account | Individual flows, linked to accounts and due dates |
| Horizon | The budget year | Rolling 12 months, continuously updated |
| Use | Strategic steering and variance control | Operational decisions: funding, investing, chasing payments |
The budget is built first; the forecast then adjusts it to actual spending and resources. Used together, they give you two complementary sources of data.
How to build a cash flow forecast in 6 steps
- Set the horizon and the granularity. Twelve months at monthly intervals for steering the business, a few weeks at weekly intervals in tight periods.
- Start from the opening cash balance. The actual balance of your bank accounts at the start of the period, after bank reconciliation.
- List your receipts. VAT-inclusive sales at their likely collection date based on customer payment terms, outstanding receivables, capital injections, loans, grants and VAT refunds.
- List your payments. Purchases and overheads including VAT, salaries and social charges, rent, VAT due, taxes, loan repayments and capital expenditure.
- Calculate the balances. The month’s net flow (receipts minus payments), then the closing cash balance, which becomes the opening balance of the following month.
- Compare with actuals and adjust. Each month, set forecast against actual, explain the gaps and extend the plan by one month.
Good to know. The most common mistake is to think in terms of invoice date and amounts excluding VAT. A sale invoiced in March and paid at 60 days lands in May, at its VAT-inclusive amount; the VAT collected then shows up as a payment in the month it is filed.
Cash flow forecast example
Here is the typical structure of a cash flow forecast, with illustrative figures:
| Item (in €) | January | February | March |
|---|---|---|---|
| Opening cash balance | 40,000 | 31,500 | 27,000 |
| Customer receipts | 85,000 | 92,000 | 110,000 |
| Other receipts (loan, grant) | 0 | 15,000 | 0 |
| Total receipts | 85,000 | 107,000 | 110,000 |
| Suppliers and overheads | 48,000 | 55,000 | 52,000 |
| Salaries and social charges | 38,000 | 38,000 | 38,000 |
| VAT, taxes and duties | 5,000 | 12,000 | 6,000 |
| Loan repayments and investments | 2,500 | 6,500 | 2,500 |
| Total payments | 93,500 | 111,500 | 98,500 |
| Closing cash balance | 31,500 | 27,000 | 38,500 |
Read this way, February’s squeeze is visible as early as January: the company can postpone an investment, speed up collections or negotiate an overdraft facility before it actually needs one. To go further, see our article on cash flow problems.
How can you make your cash forecasts more reliable?
A forecast is only useful if it is credible. Four difficulties come up again and again: unpredictable receipts, external factors (interest rates, currencies, the economic climate), the quality of the source data and, in groups, coordination between entities. To tackle them:
- Build three scenarios. Cautious, central and optimistic, to gauge your safety margin.
- Lean on history. Payment times you have actually observed are a better guide than contractual terms.
- Automate data collection. Bank statements, invoices and payment schedules fed in automatically leave fewer gaps.
- Involve the business. Sales and purchasing know about upcoming orders before accounting does.
Automate your cash flow forecastE-Trésorerie compares your forecasts with actuals every day, in the short, medium and long term.
Discover the solutionFrequently asked questions about cash flow forecasts
What is the difference between a cash flow forecast and a cash budget?
The budget sets an annual framework for total receipts and payments. The cash flow forecast predicts actual flows month by month and is updated continuously as real spending and resources come in.
What time horizon should a cash forecast cover?
Twelve rolling months at monthly intervals suit most companies. In tight periods, add weekly tracking over the next 8 to 13 weeks.
How do you compare forecast and actual?
Each month, put the actual figure next to the forecast for every line, analyse the significant gaps and correct your assumptions for the months ahead.
- Banque de France — statistics and publications on corporate financing and payment times (in French)
- Bpifrance — public financing for businesses (in French)
Director of Sales at E-Finances, a French financial software publisher for more than 25 years.
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