Cash is the lifeblood of your business. If your company doesn't generate enough cash from its activities, it won't cover its expenses and have enough left to repay investors, pay suppliers or grow the business.

A cash flow forecast helps you monitor and optimise working capital, tracking the money going in and out of your business regularly to respond to market changes and adapt your resources.

Download iwoca’s cash flow forecast template and read our article to understand more about projections, the factors that impact cash flow and the benefits of regular forecasting. 

What is a cash flow forecast?

In simple terms, a cash flow forecast is a document to record your company’s outgoings and balance them with the money you have coming in. Projecting cash flow is a core pillar of running your business, enabling you to keep your finances stable, avoid cash shortages, and make informed decisions about where to allocate your resources. 

With an effective cash flow forecast, you’ll get a clear view of your financial position and outlook, helping you track spend against goals, adjust forecasts in line with conditions on the ground and adapt to changing circumstances.

Why cash flow forecasting matters

Iwoca research at the end of 2025 found that issues with cash flow as the top reasons for businesses seeking finance, but poor cash flow was also revealed as the biggest reason for brokers to reject funding applications, according to our recent SME Index findings. 

So, proactive and accurate forecasting helps you predict potential cash flow problems to give you a chance to take measures to address them.

Here are some of the top benefits of a business cash flow forecast:

• Maintaining financial stability: By forecasting cash flow, businesses can ensure they have enough funds to cover their operational expenses each month, preventing disruptions in their activities.
• Preventing cash shortages: Accurate cash flow forecasting helps identify periods when cash might be tight, allowing businesses to plan ahead and secure necessary financing.
• Informed financial decisions: With a clear understanding of your business cash flow position, you can make better decisions regarding investments, expenditures and growth opportunities.

What affects your business cash flow?

Understanding what affects cash flow is key to preventing shortages and addressing potential issues. Here are the main factors that can impact business cash flow:

Overhead expenses and indirect costs

If your running costs exceed incoming revenue, you’ll fall into negative working capital and risk running out of cash. This is where managing your costs is key. Consider the following actions:

• Regularly review expenses – conduct a monthly review of all overhead costs to identify areas for reduction.
• Negotiate with suppliers – by seeking better terms or bulk discounts, to lower costs, can free up more working capital.
• Improve energy-efficient practices – implementing energy-saving measures will reduce utility bills.

Receivables management

The speed at which your customers pay for goods or services affects the amount of money coming in and your business's cash flow. The longer they take to pay, the longer you’re out of pocket.

Here are some ways to address these issues:

• Implement clear payment terms – provide clarity over invoice payment requirements and deadlines.
• Proactively chase invoices – follow up promptly on overdue accounts, including the use of automation workflows, alerts and chasing tools and service providers. 
• Offer incentives for early payment – consider providing discounts to customers who pay early.
• Explore invoice financing – if you have long payment schedules or regular issues with clients paying late, consider using an invoice finance provider to advance cash and prevent cash flow gaps. 

Investing and financing decisions

Purchasing expensive equipment or new office space can dramatically decrease your cash flow. How your business chooses to fund these purchases also affects cash flow. So, here are some actions that can help:

• Assess ROI carefully – evaluate the return on investment before making significant business purchases.
• Consider asset finance – hiring or leasing equipment can spread the cost over time and preserve crucial cash flow.
• Explore other financing options – various finance solutions can help you manage cash flow and support key investments without impacting day-to-day operations, such as flexible business loans, working capital loans, revenue-based finance and lines of credit.

What to include in a cash flow forecast

Cash flow forecasts help you anticipate periods of cash surplus or shortage and plan accordingly. Below, we outline the key things you need to include.

In your cash flow forecast template, you’ll need to detail all outgoings, such as:

• Staff salaries: Regular wages paid to employees.
• Rent payments: Monthly or quarterly payments for your business premises.
• Cost of materials: Expenses for raw materials or goods for resale.
• Utilities: Payments for electricity, water, gas, and other utilities.
• Miscellaneous expenses: Any other recurring costs such as insurance, office supplies, and maintenance.

Also, include all incoming payments, such as:

• Sales revenue: Income from selling products or services.
• Cash grants: Financial aid received from government or private entities.
• Small business loans: Funds borrowed to support business activities.
• Other income: Any additional sources of income, like interest earned or rental income.

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How to create a cash flow forecast step by step

Forecasting cash flow is crucial for planning, making informed decisions, and avoiding financial pitfalls. Here’s a step-by-step guide to help you accurately forecast your business cash flow.

Step 1: Create a detailed budget

Creating a comprehensive budget is the foundation of effective cash flow forecasting. A detailed budget allows you to list all income sources and expenses, providing a clear picture of your financial situation.

Tips for implementing:

• List all income sources, including sales revenue, investment income grants, and loans.
• Detail all expenses, such as operational costs, salaries, rent, utilities and any miscellaneous expenses.
• Categorise expenses, separating fixed costs from variable costs, for easier assessments and reporting.

Step 2: Use a cash flow forecasting template

Utilising cash flow templates simplifies the forecasting process and ensures consistency and accuracy. Templates are user-friendly and can be easily customised to suit your specific needs, plus they help ensure all necessary components are included and organised systematically.

Scroll down to download a free cash flow forecast template.

Step 3: Estimate cash flow

Estimating cash flow involves using historical data and project plans to forecast future cash inflows and outflows. Here’s an overview:

• Historical data: Analyse past financial data to identify patterns and trends.
• Project plans: Consider future projects, investments, and expected income.
• Asset impact: Evaluate how asset acquisition or sales will impact cash flow.

If you’re investing in new equipment, factor in the initial outflow and the expected increase in productivity and revenue.

Step 4: Monitor and adjust

Regularly monitoring and adjusting your cash flow forecast ensures it remains accurate and relevant. Consider the following actions:

• Conduct monthly or quarterly reviews of your cash flow projections.
• Modify forecasts based on actual performance, market changes or unexpected expenses.
• Understand how small changes can significantly impact cash flow – for instance, a slight increase in sales can improve cash flow, while a minor rise in costs can decrease it.

If you notice a seasonal dip in sales, adjust your projections to account for lower income during those periods and plan accordingly.

Download our free cash flow forecast template

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How short-term finance can support your cash flow

Having a good amount of working capital is crucial for a small business. If you have limited working capital, it’s worth considering using revolving credit facilities like business overdrafts, business credit cards or a line of credit for easy access to quick injections of cash.

Other short-term finance options include asset and equipment finance, which allow you to acquire/use key assets without a big upfront cost that impacts cash flow, or invoice finance, which unlocks working capital tied up in client invoices. 

Another great option to consider is an unsecured business loan, such as an iwoca Flexi Loan, which is a fast and flexible short-term loan to help SMEs manage their cash flow and invest in their future growth. From bridging gaps in cash flow to covering the cost of large stock orders or investments, you can apply in minutes and get a funding decision within 24 hours. 

Find out how much you could borrow and your likely repayment by using our handy business loan calculator or explore the benefits of our flexible loan solutions. 

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Cash flow forecasting FAQs

Here are a few common questions about cash flow forecasting that may help answer additional queries you may have:

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

A cash flow statement shows your past cash movement (incomings and outgoings), while a cash flow forecast predicts future inflows and outflows to help business plan ahead, make adjustments and implement proactive measures.

How often should I update my cash flow forecast?

Ideally, you should update your cash flow forecast monthly, but you can do it more frequently if your business has sudden changes in cash flow that may significantly impact your future position.

How far ahead should I forecast cash flow?

Most businesses forecast cash flow 12 months ahead. However, there are benefits to having weekly, monthly and quarterly cash flow forecasting views for more granular monitoring and management.

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