Cash flow forecast: what it is and how to create one

Published Thursday 16 April 2026

Table of contents

• What is a cash flow forecast?
• Components of a cash flow forecast
• Benefits of a cash flow forecast
• Types of cash flow forecasting periods
• Cash flow forecasting with spreadsheets or software
• How to forecast your cash flow
• FAQs on cash flow forecasting

Key takeaways

• Create cash flow forecasts to predict your future cash position and prevent costly shortages by estimating all incoming money (sales, loans, grants) and outgoing expenses (rent, payroll, loan payments) over specific time periods.
• Choose the appropriate forecasting timeframe based on your business needs: use short-term forecasts (days to 3 months) for immediate cash management, medium-term (3–12 months) for annual planning, and long-term (1–5 years) for major business decisions like expansion or loan applications.
• Use accounting software instead of manual spreadsheets to automate data collection and updates, which saves time and provides more accurate projections as your business grows and transaction volumes increase.
• Update your forecasts regularly with actual results to improve accuracy over time, and build conservative estimates by projecting lower income and higher expenses to account for unpredictable business fluctuations.

What is a cash flow forecast?

A cash flow forecast is a financial tool that predicts how much money your business will have at specific future dates by estimating incoming and outgoing cash. It shows your expected cash position so you can plan spending, avoid shortages, and make informed decisions about growth.

This forecasting gives you visibility into your business's future financial health before problems arise, which is crucial considering cash flows have been the fourth most common accounting issue cited in restatements from 2003–2022.

A cash flow projection is different from a cash flow statement. While a statement looks back to past cash flows, a projection looks forward.

What goes into a cash flow forecast

A complete cash flow projection includes:

• starting balance: current cash in your business accounts
• cash inflows: expected money coming in from sales, loans, grants, tax refunds, and owner contributions
• cash outflows: planned expenses, loan payments, owner draws, and other costs leaving your business
• ending balance: projected cash position at the end of your forecast period

Two main methods exist for creating cash flow projections:

• direct method: gather and list individual cash transactions like sales receipts, bill payments, and loan payments to build your forecast piece by piece
• indirect method: use existing financial statements like your income statement and balance sheet to estimate future cash flows

The direct method gives more detail but takes more time, which may explain why its use in public filings has been decreasing through time to just 0.48 percent. The indirect method is faster if your financial statements are up to date.

The more accurate your estimates are, the more accurate your forecast will be. Learn more about cash flow forecasts from the US Treasury.

Components of a cash flow forecast

A cash flow forecast has three main parts that work together to show you the full picture of your money:

• cash inflows: all money coming into your business, including revenue from sales, customer payments, and loans, such as SBA 7(a) loans which accounted for about $95 billion in outstanding loan principal in 2019
• cash outflows: all money going out, including rent, payroll, inventory costs, loan repayments, and marketing
• net cash flow and closing balance: the difference between your inflows and outflows for a period, added to your starting cash balance to show your expected cash at the end of the period

Benefits of a cash flow forecast

Cash flow forecasting helps you maintain financial control and avoid costly surprises. Key benefits include:

• spot potential shortfalls early: secure financing or delay expenses before cash runs out
• evaluate growth plans: determine if you can afford new equipment, staff, or expansion projects
• detect financial trends: identify rising expenses or declining income patterns quickly
• address cash flow problems: resolve issues like slow-paying customers or impractical payment terms
• plan owner compensation: ensure sufficient cash flow to pay yourself regularly

Learn more from SCORE about how cash flow forecasts can help you make business decisions.

Consider using a cash flow dashboard to visualize how cash balances will rise and fall in response to expected transactions.

A cash flow dashboard shows how cash balances will rise and fall in response to expected transactions.

Types of cash flow forecasting periods

Cash flow forecasting periods determine how far into the future you predict your cash position. Different timeframes serve different business planning needs.

Short-term forecasts

Short-term forecasts cover cash flow over the next few days to 3 months, focusing on immediate cash availability. Use them to avoid overdrawing your account, plan inventory purchases, or prepare for urgent expenses.

Medium-term forecasts

Medium-term forecasts project cash flow 3 to 12 months ahead, helping with annual planning and major business decisions. Common uses include:

• planning for seasonal cash flow changes
• budgeting for equipment purchases
• preparing for off-season revenue drops

Long-term forecasts

Long-term forecasts project cash flow 1 to 5 years into the future, guiding major business planning decisions. Use them for:

• loan applications and financing decisions
• business expansion planning
• preparing for economic challenges or market changes

Mixed-period forecasts

Mixed-period forecasts combine multiple timeframes to help you set goals and budget. They let you test different scenarios, such as:

• how short-term expenditures affect long-term cash flows
• how improving short-term cash flow makes it possible to invest in growth over the long term

Learn more about financial management with the FDIC's small business education resources.

Cash flow forecasting with spreadsheets or software

You can create cash flow forecasts using spreadsheets or specialized software. Your choice depends on your transaction volume and how much time you can spend on manual updates.

Spreadsheet forecasting offers the following advantages and considerations:

• Benefits: complete control over data entry and customization
• Best for: small businesses with simple cash flows and time for manual updates

Software forecasting offers the following advantages and considerations:

• Benefits: automatic data import and faster updates
• Best for: businesses with many transactions or complex cash flows

Accounting software helps you create a projection with a few clicks. The process is fast and works well even as your business and transaction volumes grow.

Auto-generated forecasts are based on past performance. If your business is changing, you can manually adjust for additional cash inflows or outflows to create a more realistic forecast.

How to do a cash flow projection with a spreadsheet

Follow these steps to create a cash flow projection using a spreadsheet:

1. Choose a forecast period and note how much cash you have at the beginning of that period.
2. List and date all your expected cash income, including sales receipts, grants, tax refunds, or incoming financing.
3. List and date your outflows, including regular business costs and less frequent items like annual fees, estimated tax payments (which are generally required if you expect to owe $1,000 or more), or repairs.
4. Take your starting balance and run through the forecasting period, adding incoming amounts and subtracting outgoing amounts.

Forecasting cash flow with software

Accounting software like Xero makes it easy to generate a cash flow projection because it already tracks your business incomings and outgoings. Xero also integrates with apps like Fathom and Calxa for more detailed, long-term projections.

How to forecast your cash flow

Cash flow forecasting involves estimating when money will come in and go out of your business, then calculating your expected cash position at specific future dates. Once you've chosen your tool, follow these steps to build your forecast.

You can use a business plan template from SCORE to simplify the process.

1. Set clear forecasting goals

Define your forecasting purpose before building your projection. Clear goals determine your forecast timeframe and level of detail. Common forecasting goals include:

• ensuring sufficient cash for payroll and immediate expenses
• planning major equipment purchases or facility improvements
• evaluating financing needs for business expansion

2. Choose your forecasting time frame

Choose a time frame that lines up with your goals. Urgent questions require a short-term forecast, but if you're thinking about the future, you need a medium, long, or mixed-term report.

3. Choose a forecasting method

Decide whether to use the direct method or indirect method based on your business needs. The direct method requires listing individual transactions, while the indirect method uses your existing financial statements to project future cash flows.

Select the method that matches your available data and the level of detail you need for your forecasting goals.

Cash flow forecasts help you manage your business finances

Strong cash flow makes it easier to run your business. A cash flow projection helps you improve your cash flow planning and take control of your business's finances.

To reduce the time you spend collecting and updating cash flow data, you can automate the process with accounting software like Xero. Get one month free.

FAQs on cash flow forecasting

Here are answers to common questions about cash flow forecasting for small businesses.

What's the difference between a cash flow forecast and a cash flow statement?

A cash flow statement shows historical cash movements that already happened in your business. A cash flow forecast predicts future cash movements based on your expected income and expenses.

How often should I update my cash flow forecast?

Update your cash flow forecast at least monthly, or weekly if your business has significant cash flow fluctuations. Regular updates help you catch potential problems early and adjust your projections based on actual results.

What's the best forecasting period for a small business?

Most small businesses benefit from maintaining both a short-term forecast (13 weeks) for immediate cash management and a medium-term forecast (12 months) for annual planning. Add long-term forecasts when planning expansion or seeking financing.

Can I create a cash flow forecast without accounting software?

Yes, you can create a cash flow forecast using spreadsheets. However, accounting software automates data collection and updates, which saves time and reduces errors as your business grows.