Cash flow forecast

How Do I Know If I'll Have Enough Cash Next Month?

The cash crunch that hurts is the one you never saw coming. This simple 15-minute Monday habit spots it weeks ahead, while you still have time to do something about it.

Quick test. How much is in your business bank account right now? Most owners can answer that one to the dollar.

Now, how much will be in there six weeks from today? If your answer was a shrug, a nervous laugh or "depends who pays me," you're in very good company.

It isn't your fault. Your accounting software is great at telling you what already happened. It won't warn you that payroll, rent and a tax bill are about to show up in the same slow week, like three relatives who all "just happened to be in town."

A cash flow forecast will. And no, you don't need an accounting degree to build one.

What is a cash flow forecast, in plain English?

It's a list of the money coming into your business and the money going out, week by week, for the next few months. That's it. If you've ever planned a household budget on the back of an envelope, you've already built a baby version of one.

It only counts real money that moves in or out of your bank account, like:

• Customer payments and deposits

• Payroll

• Rent and utilities

• Supplier and inventory bills

• Loan and credit card payments

• Taxes

It skips accounting stuff like depreciation, because that never moves a single real dollar. If you read our post on why profitable businesses run short on cash, this is the tool that catches that problem before it bites.

How do I build a cash flow forecast for my business?

It takes about an hour the first time. Grab a spreadsheet (a notepad works too), your bank app and a coffee. Then:

1. Write down today's cash. Use the real number in your business account, not what the P&L says you "made."

2. List what's coming in each week. Open invoices by their due dates, plus regular sales you can count on. If a customer always pays three weeks late, put their money three weeks late. Be the realist here, not the optimist.

3. List what's going out each week. Payroll, rent, suppliers, loan payments, card payments, insurance, taxes. Simple rule: if it has a due date, it goes on the list.

4. Do the math. Starting cash, plus money in, minus money out, equals ending cash. That ending number becomes next week's starting cash.

5. Circle the lowest week. That's the one that can hurt you, so that's the one to watch.

An example cash flow forecast. Everything looks fine until week 7, when quarterly taxes hit during a slow stretch and the balance drops to $6,000.

Tip: Don't aim for perfect. A cash flow forecast that's roughly right and updated every week beats a beautiful one you built once and never opened again.

Why use a 13-week cash flow forecast instead of a full year?

Thirteen weeks is one quarter, about three months. It's the sweet spot:

• Long enough to catch the stuff that only shows up now and then, like quarterly taxes, insurance renewals or your slow season

• Short enough that your numbers are still real, not wishful thinking

A full-year cash flow forecast is mostly guesswork. Only looking at next week is like checking the weather by looking out the window: accurate, but not much help for planning.

How far ahead can a cash flow forecast warn me about a shortfall?

Here's the same example as a chart. Back in week 1, the owner can already see that week 7 is going to be tight.

Ending cash each week, against the $20,000 cushion this owner wants to keep.

That's six weeks of warning. And six weeks gives you options:

• Chase a big invoice before it's late

• Ask a supplier to move a payment

• Push a purchase back a month

• Line up working capital while it's still a calm decision

Without a cash flow forecast, you find out on the day. And on the day, your only real option is panic.

How do I keep my cash flow forecast up to date?

A cash flow forecast only works if it stays fresh. The easiest habit is a 15-minute Monday money check: every Monday morning, before the phone starts ringing, update these five numbers.

Then swap last week's guesses for what actually happened and add one new week at the end, so you're always looking 13 weeks ahead. Most Mondays it's quick and a little boring. Boring is exactly what you want from your cash.

What should I do when my cash flow forecast shows a dip?

Start with the free fixes, roughly in this order:

Chase the big invoices first. One phone call about a large overdue invoice can do more than a month of cutting back on coffee pods.

Talk to your suppliers early. Asking to move a payment two weeks goes a lot better a month ahead than on the day it's due. Suppliers enjoy surprises about as much as you do.

Push back what can wait. New equipment, extra inventory and that office makeover can usually wait a month without anyone noticing.

Plan the bridge if you still need one. If there's still a gap after all that, working capital can cover it. Set up weeks ahead and sized to the gap, it's a business decision, not an emergency.