Profit is what your business makes. Cash flow is what actually turns up in your bank account when you need it. And plenty of profitable businesses still get caught short at exactly the wrong moment; a big bill, a quiet month, a tax instalment that lands with a thud.
A cash flow forecast is how you see those moments coming, not with a crystal ball, just a simple, honest look at the money moving in and out over the months ahead. Get it in place at the start of a financial year and the whole twelve months feels calmer and more in your control.
Here’s how to build one.
What a cash flow forecast actually is
A cash flow forecast is a month-by-month picture of the cash you expect to come in and go out. That’s it. It’s not your profit and loss statement, and it’s not your bank balance today, it’s where your bank balance is heading.
The difference matters. You can be profitable on paper and still hit a cash squeeze if a big payment lands before your customers have paid you. A forecast shows you that gap in advance, while you’ve still got time to do something about it.
Why the new financial year is the perfect time
The start of a financial year is a natural reset. You’ve (almost) got last year’s numbers in front of you, you’re thinking about the year ahead anyway, and there are no bad habits baked in yet. Build the forecast now and it becomes the backbone of the decisions you make over the next twelve months; hiring, spending, pricing, the lot. (It pairs nicely with a proper new financial year reset.)
What goes into a simple forecast
You don’t need anything fancy. Three ingredients:
Money coming in
Your expected income, month by month — sales, invoices, any other cash you’re confident will land. Be realistic, not hopeful. If a customer usually pays 30 days late, forecast them 30 days late.
Money going out
Every regular cost — rent, wages, stock, subscriptions, loan repayments. Then the big lumpy ones people tend to forget:
- BAS and GST each quarter
- Tax instalments
- Super — and here’s a fresh one for this year: under Payday Super, super now leaves the business every pay cycle rather than quarterly, so it’s a steadier, more frequent outflow to build in. (More on that in our Payday Super checklist.)
The timing
This is the whole point. It’s not just what comes in and out, but when. A cost you’d easily cover in a strong month can really pinch in a quiet one — and the forecast is what shows you the difference before it happens.
Building it in a few steps
- Start with your opening bank balance.
- Add expected income for each month.
- Subtract expected costs for each month.
- Carry the closing balance into the next month.
- Look for the dips — the months where things get tight.
You can do this in a spreadsheet, or let your accounting software do the heavy lifting. If you’re on Xero, a lot of this can be pulled from data you already have, which makes keeping it current far less of a chore.
Turning the forecast into better decisions
A forecast isn’t a “set it and forget it” document. Its real value is in what it lets you do:
- See a quiet season coming and build a buffer before it hits.
- Time a big purchase for a month that can actually absorb it.
- Approach a lender early and prepared, rather than late and stretched.
- Say yes to an opportunity because you know the cash is there.
That’s the shift – from reacting to the past to steering the future.
Want a hand getting started?
Cash flow forecasting is one of the things we love most, because it’s where accounting stops being about the past and starts being genuinely useful. If you’d like help building a forecast for the year ahead reach out to enquire about how we can get you making decisions quickly.
This article is general information only and doesn’t take your personal circumstances into account. Please get in touch for advice tailored to your situation.
