A Step-by-Step Guide to Cash Flow Forecasting

If you don’t have your own crystal ball to predict when exactly you’ll have some liquid cash, don’t fret. Cash flow forecasting is an even better tool that helps predict cash inflows and outflows, preventing surprises that can cost you.

In this article, we’ll explore what cash flow forecasting is, why it matters to your business and how you can build a reliable forecast.

What is cash flow forecasting?

Cash flow forecasting involves estimating future cash inflows (such as your sales, receivables and funding) and your outflows (such as your expenses, debt payments and payroll) over a specific period of time. It helps determine whether your business has enough liquidity to meet upcoming financial obligations. 

Cash flow forecasting is typically done daily, weekly or monthly over a period of one to six months, ensuring your business can survive day-to-day operations, such as paying bills and salaries and avoiding overdrafts. Longer-term cash flow forecasting, which is typically done over six to 12 months, helps you make more strategic decisions for the business regarding investments, capital expenditures and growth plans. 

Budgeting, which is related to cash flow forecasting, is broader and more strategic in nature. It helps you create an income and spend plan for where your company wants to go financially, whereas cash flow forecasting determines when money is coming in and out of your accounts. 

Why cash flow forecasting matters

As your business scales, financial complexity will increase. You’ll have higher payroll costs, more inventory and various capital expenditures. Having a clear view of your future cash position ensures you don’t become overextended. Here are a few key advantages of cash flow forecasting: 

• Helps anticipate cash shortages before they happen: Improve business cash flow before your reserves become insufficient. 
• Enables smarter decision-making: From hiring to investments to debt management, make strategic decisions with your cash flow in mind. 
• Strengthens relationships with lenders and investors: Avoids cash flow problems and maintains a good standing with strategic partners. 
• Provides confidence during uncertain or seasonal periods: When the market is shaky, you’ll still have a good idea of when cash is coming in or going out. 

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Key components of a cash flow forecast

So, what does a cash flow forecast include? These four components are the essentials: 

• Cash inflows: Any money coming in, such as sales, loan proceeds, investments and accounts receivable collections. 
• Cash outflows: Any money going out, such as payroll, rent, operating expenses, debt service and supplier payments. 
• Opening balance: Also known as your starting cash position. 
• Closing balance: The cash at the end of each forecasted period.

Step-by-step: How to build a cash flow forecast

Thinking about ditching your crystal ball and putting together a cash flow forecast instead? Use this cash flow projection guide to get you started, and check out the cash flow forecast example table below: 

Step 1: Gather historical financial data

You’ll use this information to project future inflows and outflows. 

Step 2: Establish the time horizon

Will you use a short-term forecast period, which is good for when you’re in a tight cash situation, or a long-term forecast period, which is helpful for making strategic decisions? Determine if you’ll use a daily, weekly or monthly time span. 

Step 3: Project inflows

Your cash inflows can include your sales pipeline, customer payments, loans, investments, grants, subsidies and other income. 

Step 4: Project outflows

Consider your fixed and variable expenses, including operating expenses, manufacturing and shipping costs, repayments on corporate card balances, loan repayments, taxes and more.

Don’t forget to include tax-related obligations such as GST/HST remittances. Tools like Float automatically categorize sales tax on transactions, making it easier to forecast these outflows and ensure compliance.

💡 Note: While corporate card transactions don’t result in immediate cash outflows, their repayments do—so it’s important to track both spend and upcoming repayment dates for accurate forecasting.

Step 5: Calculate net cash flow

Subtract the total outflows from the total inflows. 

Step 6: Calculate closing cash balance

Add your opening cash balance to the net cash flow. 

Step 7: Review, adjust and update regularly

Cash flow forecasting is never complete. Set up a rolling short-term forecast—updated weekly or monthly—so you always have visibility into your future cash position.

Does this seem complex? It doesn’t need to be. Use this cash flow forecast template as a foundation for your own.

	Actuals	Forecast
	January W4	February W1	February W2	February W3	February W4	March W1
Opening Cash Balance
Cash Inflows
Sales revenue
Loans
Customer payments
Investments
Grants and subsidies
Tax refunds
Other income
Total Inflows
Cash Outflows
Rent
Operating expenses
Payroll
Loan repayments
Corporate card payments
Taxes
Capital expenditures
Marketing
Manufacturing and shipping
Other outflows
Total Outflows
Net Cash Flow
Closing Cash Balance

Modern tools like Float make this easy by connecting real-time spend data, categorized expenses and live cash balances, all in one platform. This gives you faster feedback loops to adjust forecasts as conditions change.

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Tools and methods for cash flow forecasting

Many businesses use simple spreadsheet software, such as Microsoft Excel or Google Sheets, for cash flow forecasting, and this approach can work if your company is still in its early stages. This software is easy to use and doesn’t have a learning curve. 

If you’re scaling and your financials are more complex, consider financial planning and analysis tools, accounting software or dedicated forecasting tools. These provide a level of automation that can not only save you time, but also increase the level of accuracy in your forecasts. Many of these tools pull in real-time financial data, enable scenario planning, and offer dashboards and visualization tools. 

If you plan on building a direct short-term financial model for cash flow, you’ll need to estimate several variables. As a result, some of your projections may not be reliable. For instance, you may predict that a customer will make a payment during a certain week, but that payment may be delayed to the following week. However, this approach can be useful if you have a lot of debt or upcoming obligations, as it provides a better understanding of when you’ll need cash flow to make payments. 

If you’re taking the indirect long-term cash flow forecasting approach, your numbers will be more reliable, since you’ll have a clearer understanding of your inflows and outflows over a longer time period. For example, you’ll know if a vendor will be making a payment within a particular month (rather than on a particular day or week in a short-term forecast). You’ll have a clearer understanding of your business’s financial direction in this case, which will help you plan for expansion and growth.

Common mistakes in cash flow forecasting (and how to avoid them)

Cash flow forecasting is a straightforward process, but you may be faced with some obstacles along the way. Here’s how to avoid them: 

Overestimating sales inflows

In accurate cash flow forecasting, it’s always better to take a conservative approach and be pleasantly surprised. Avoid being too optimistic in your numbers. 

Forgetting irregular or seasonal expenses

You’re not restricted to having only one financial model for cash flow. Include levers that you can toggle on and off to see different scenarios, such as seasonal expenses and worst-case scenarios. 

Failing to update forecasts regularly

You should update your cash flow forecast regularly and roll it forward based on your time horizon. Use automated software to see numbers in real-time, such as corporate card spend tracking tools, to update numbers in your forecast. 

Ignoring receivable collection delays

Don’t let collection delays get out of hand. Automate processes such as sending reminders to delinquent customers to make payments. 

Operating in silos

Have communication channels in place so that other departments always keep finance informed. For example, if your marketing team has a major campaign coming up, they can use an automated email to inform your finance team about upcoming outflows.

Cash flow forecasting: A reliable look into the future

Cash flow forecasting helps your business anticipate cash shortages, provides certainty during turbulent periods and enables smarter business decision-making. It gives a reliable look into your cash inflows and outflows for specific periods of time—better than any crystal ball! 

Where should you keep that cash? Check out Float’s high-yield business accounts, where you can earn up to 4% interest on your business balance.

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