How to forecast cash flow when profit is not the problem
Profitable businesses fail on timing. A month can earn nine thousand and still leave you five thousand short.
The short answer
A cash forecast records money on the date it moves, not the date it is earned. Profit is measured when work is done and invoiced; cash arrives when the customer pays. The gap between those two dates is what causes solvent businesses to run out of money.
The formula
opening balance + cash in - cash out = closing balance
cash in = invoices actually collected this month, whenever they were raised
cash out = payments actually made this month
closing balance carries forward as next month's opening
Nothing in a cash forecast is accrued. If an invoice is raised in January on 45-day terms it belongs in the March row, and putting it in January is how a forecast reassures you right up until it does not.
Worked example
A month with $42,000 invoiced and $33,000 of costs, where customers pay on 45-day terms and suppliers are paid on 30:
profit this month = 42,000 - 33,000 = 9,000
cash in = December's invoices collected = 28,000
cash out = November and December supplier bills = 33,000
net cash movement = 28,000 - 33,000 = -5,000
opening 11,000 → closing 6,000
The month made $9,000 and the bank balance fell by $5,000. Both are true, and only one of them can pay a wage bill.
The three timing gaps that cause most trouble
Payment terms in one direction and not the other. Being paid in 45 days while paying in 30 means every dollar of growth costs you cash, because a bigger month makes the gap bigger too.
Tax, which accumulates invisibly and lands quarterly or annually. It is not an expense in the month it is paid, so it never appears in a profit-based view of a cash problem.
Anything annual. Insurance, software renewals, licences. They are small when spread across twelve months in your head and they are not spread when they arrive.
Why growth is the most common cause of a cash crisis
Growing means buying materials, paying people and carrying receivables ahead of collection. A business doubling its turnover has roughly doubled its working capital requirement, and the profit that justifies it arrives after the cash that funds it.
This is why a good year can be the year you nearly go under. The forecast is what shows you the trough before you commit to the growth, and the answer is usually deposits or staged payments rather than a loan.
How far ahead is worth forecasting
Thirteen weeks, weekly, is the version most useful to a small business. It is long enough to see a problem while there is still time to act and short enough that the numbers are mostly known rather than guessed.
A twelve month view has its place for planning, but by month five it is fiction, and treating fiction as a plan is how the thirteen week reality arrives as a surprise.
What this leaves out
- Assumes customers pay on terms. If they do not, forecast on actual behaviour rather than agreed terms, which is often a very different number.
- Excludes financing. Overdrafts and loans smooth the picture and are worth modelling separately so the underlying position stays visible.
- Tax treatment varies by country and structure. The timing principle holds; the amounts do not.
This arithmetic is free to run in your browser — no signup, nothing held back.
Open the free calculatorCommon questions
- What is the difference between profit and cash flow?
- Profit is earned when work is done. Cash moves when someone actually pays. A business can be profitable and insolvent at the same time, which is not a paradox, it is the ordinary reason well-run companies fail.
- How often should I update a cash forecast?
- Weekly, and it should take under fifteen minutes once it exists. The value comes from the update, because a forecast written once and left alone is just an opinion from a month ago.
- What should I do when the forecast shows a shortfall?
- Act on the earliest lever, which is nearly always collection rather than cost. Chasing what is already owed to you is faster and cheaper than cutting spending, and a shortfall three weeks out is a phone call while the same shortfall three days out is a crisis.
Spreadsheets that do this
The formulas above, already built and checked — so you fill in your numbers rather than the arithmetic.
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Last reviewed 22 August 2026