Cash Flow Forecast

Your cash flow forecast may not be the top of your list and money may not buy you happiness but in business liquidity, or available cash, will buy you a whole lot of things and ensure your business’ longevity and growth.

There is a famous saying … “Turnover is vanity, profit is sanity, cash is king.”

And never a more true word has been spoken.

Many businesses go bust every year simply because they have no cash flow forecast; that is to say they have no money in the bank to pay their immediate debts as they become due. Sure, a business may have £30 million owed to them to be paid in 3 months time, of which £25 million of it is pure profit, but if they haven’t got the £100,000 in the bank they need to pay the rent now, they could still lose everything, even with such a large amount owed to them.

“Usable” money in the bank is a vital component of your business success.

A cash flow forecast is a crucial financial management tool which helps you plan your cash flows to avoid a potential liquidity crisis. What this forecast shows you is how much money you expect to have coming in and going out of your account over the coming months and years.

Here are the top 4 reasons why you benefit from having a cash flow forecast: 


  1. It predicts shortcomings, as it draws an alarm signal once your revenue (income) is starting to become lower than your costs.
  2. It ensures you are always prepared for the payments you have to make: salaries, utilities, suppliers etc. and helps you prioritize them accordingly.
  3. It keeps track of accounts receivables and of incomes from clients, which helps you distinguish your most valuable clients.
  4. It keeps your investors and lenders satisfied.


Cash-flow forecasts usually cover different periods of time, from 30 to 90 days or can even cover a whole year. Depending on your company’s stability, you may choose the version that best suits you. If your business is struggling, you should require daily updates from your finance team.

Here are some pointers to help:

  • Profit is not the same as cash.Even if you make a significant sale, you cannot actually use the sale amount until you have been paid.
  • Accounts payable are still debts and you need to track them as you would any other payments that impact cash-flow. Vigorously.
  • Profitable companies you do business with may go out of business when they have cash-flow issues, so monitor closely your clients’ payment deadlines.
  • Negotiate hard on all your commercial terms
  • Do not get blinded by the idea of selling something, as not all sales turn out to be beneficial (as we saw with my builder friend earlier.)
  • Analyze your clients. If you have a major client that makes up for a high percentage of your income, consider finding additional alternatives. You may not want your business to depend on just one or two other businesses.
  • Play with the cash flow forecast, and see what happens if a major client delays or withholds payment and then see what happens if you lose them as clients.

Don’t think your business plan or idea is above all these financial metrics. That is a major mistake. I lost a business because I simply didn’t know my numbers. Yet as soon as I started my second, I vowed to watch my numbers daily, and now all my businesses are thriving.

Be in no doubt that your business success is in the numbers.

It is vital to remember that a business or company can be extremely profitable but still not have enough money to pay its immediate bills, and therefore at risk of bankruptcy.

 Symptoms of cash flow problems. 

There are many reasons a business can suffer cash flow problems – some are down to mismanagement, lack of work generally, or poor business decisions, and in some cases factors outside of your control. If you are suffering from any of the following symptoms then your business could be experiencing cash flow problems:

  • Up to the overdraft limit 
  • Stretch to pay salaries each month
  • Trade creditor arrears
  • HMRC arrears
  • Rent arrears
  • No working capital ‘buffer’ – surviving day to day
  • Negative working capital on balance sheet 
  • Lack of funds for remedial action
  • Lack of profitability – insufficient to support owner / manager’s lifestyle
  • Unable to pay for professional advice

Be in no doubt that cash flow is one of the most serious problems a business may face, and is therefore one of the most important.

Keep on top of your debtors and “actively” chase every person or company that owes you money, regardless of how much they spend with you or who they are. If payment is not forth coming within the agreed timelines, then you must actively chase all debts.

Remember, the other party agreed to the terms of the sale timelines too!

Do not become known as a company that doesn’t chase its debts, as your debtors will only take the p**s out of companies they know won’t chase too hard. Become known for stringent enforcement of debt chasing and companies are far less likely to cause you cash flow problems by withholding payments in future because they know you’ll be on the phone giving them grief if they don’t pay promptly.