Understand
Cash flow records money moving into and out of the business. Profit and cash are different: an unpaid invoice can contribute to recorded sales while the bank balance has not increased. This exercise is a planning model, not an accounting or tax calculation.
Check
Choose the period and opening available balance. Identify when customers actually pay, when suppliers must be paid and which commitments recur. Separate confirmed transactions from estimates. Do not count a proposed loan or grant as available cash before its availability and timing are established.
Compare
Prepare a base case and a cautious case using explicit assumptions, such as slower customer payments or fewer sales. Compare the lowest closing balance and when it occurs. A healthy year-end balance does not remove a shortfall earlier in the year.
Prepare
List cash receipts and payments by month or week. Keep currencies separate unless you use a stated exchange-rate assumption and date. Include one-off setup payments, recurring commitments, repayments and withdrawals where relevant; confirm applicable tax treatment with an appropriate adviser.
Do
For each period, add expected cash receipts to the opening balance and subtract cash payments. The closing balance becomes the next period’s opening balance. Keep separate rows for sales invoiced and cash received if you need both; only receipts belong in the cash calculation.
Verify
Reconcile the opening balance with the funds actually available. Check that the closing-to-opening carry-forward is correct and that no invoice or payment has been counted twice. Identify any negative period and decide what action must happen before that date; the forecast itself does not supply funding.
Maintain
Replace estimates with actual receipts and payments as they occur, retain a copy of the assumptions and investigate material differences. Refresh the forecast when payment terms, costs or commitments change. Keep business and personal cash clearly distinguished.
A worked example
Illustrative calculation: opening cash of £1,000 plus £600 received less £900 paid leaves £700 closing cash. An additional £500 invoice that has not been paid does not increase that balance. The next period starts at the previous closing balance, assuming no other transactions.
Common mistakes
- Putting an invoice into the month it is sent instead of when payment is expected.
- Adding annual and monthly costs without converting them into a consistent forecast period.
- Assuming a positive annual total means every month can meet its bills.
Put it into practice
Work through these prompts. Ticks last only while this page is open; no answers are sent or stored. Download the blank worksheet to keep your own notes.
Supporting reading
Sources inspected 7 November 2026. Exercises and examples above are original teaching material; the linked organisations have not endorsed this guide.
- Business Wales — cashflow forecast
Welsh business support; use the general cash-planning method, and verify local accounting/tax rules separately.
- GOV.UK — write a business plan
UK reference for general planning; not Jersey or Guernsey formation rules.