Cash flow forecast reports show the expected cash inflows and outflows of a business over a specified period. They typically include projected revenue, expected cash collections from customers, and anticipated expenses such as salaries, rent, utilities and other operating costs, as well as planned capital expenditures like equipment or business investments.
For small business owners, a cash flow forecast is one of the most important financial tools. It builds on your profit and loss report to provide a forward-looking view of your ability to meet obligations and maintain operations, especially valuable in Q1 when budgets are still settling.
Understanding breakeven sales, the point where revenue covers all fixed and variable costs, is important. But a cash flow breakeven forecast takes this further by including cash requirements not shown on your profit and loss.
Use this guide to create a simple, effective forecast:
Start with your profit and loss forecast for the period. If you are registered for GST, remember profit and loss reports exclude GST.
If you do not have a forecast, use the same month from the previous year as a baseline.Add back non-cash items that do not affect cash flow but appear in your profit and loss.
For example, interest charged to a loan account.Include other cash outflows not shown in your profit and loss.
For example, loan repayments and GST paid to the ATO (via your BAS).Be mindful of superannuation and PAYGW. If included in your profit and loss and paid in the same period, no adjustment is needed.
Consider credit card timing. If spending and repayments are consistent, assume they are already captured in your expenses and GST adjustments.
Adjust for changes in revenue. If you expect sales to increase or decrease, update your cost of goods sold (COGS) by the same percentage.
The outcome
Your forecast will show whether you are heading for a cash surplus or deficit this quarter. While this method is intentionally simple, it offers a practical starting point to improve cash visibility and confidence in Q1.
