A cash flow forecast is just a forward-looking view of money coming in and money going out. It tells you whether you’ll have enough cash to cover obligations next week, next month, or three months from now. Building one is not complicated, but it does require honest assumptions and regular updates.

Start with your current cash balance. This is the number in your bank accounts right now, not your accounts receivable or revenue pipeline. Actual cash on hand. That’s your starting point.

Next, project your cash inflows for each week or month going forward. This is where most business owners make their first mistake. Revenue on your P&L is not the same as cash in the bank. If you invoice a client on March 1 and they pay net 30, that cash doesn’t show up until April. Use realistic collection timelines based on how your customers actually pay, not how your invoices say they should pay. Look at your last six months of receivables to see the real pattern.

Then estimate your cash outflows. Start with fixed costs because they’re predictable: rent, payroll, insurance, loan payments, subscriptions. Layer in variable costs like materials, subcontractors, and marketing spend based on historical averages or planned activity. Don’t forget quarterly obligations like estimated tax payments and annual expenses like insurance renewals. These lump-sum payments catch people off guard when they only think month to month.

For each period, subtract total outflows from total inflows and add the result to your beginning cash balance. That gives you your projected ending cash balance. That ending balance becomes the starting balance for the next period. Roll this forward 13 weeks for a short-term view or 3 to 6 months for planning purposes.

Be conservative. Assume some invoices will pay late. Assume some expenses will come in higher than expected. If your forecast says you’ll have $2,000 left at the end of a month with optimistic assumptions, you’re probably going to be short. Build in a buffer.

A spreadsheet works fine for this. You don’t need special software. A simple grid with weeks or months across the top, cash in and cash out categories down the side, and running balances at the bottom gives you what you need. If you’re using QuickBooks Online, there are built-in cash flow tools that pull from your actual data, which saves time and reduces guesswork.

The forecast only works if you update it. A cash flow projection you built in January and never touched again is useless by March. Review it weekly if cash is tight, or at least monthly if you’re in a comfortable position. Compare what actually happened to what you predicted, and adjust your assumptions going forward. Over time your forecasts get more accurate because you’re learning your business’s real cash patterns.

Where most small business owners get stuck is not having clean books to build from. If your bookkeeping services aren’t current, you don’t have reliable historical data to base your projections on. Garbage in, garbage out applies directly here.

If building and maintaining a forecast feels like more than you can take on alongside running your business, that’s a normal reaction. Budgeting and cash flow forecasting is one of those things that pays for itself quickly because it prevents the expensive surprises that come from flying blind. Knowing you’ll be short three weeks from now gives you time to act. Finding out the day a payment bounces does not.