Cash flow forecasting is key to surviving and thriving as a small business owner.

Cash flow is the flow of money in and out of your business. A positive cash flow means money is coming into the bank faster than you’re spending it.  A negative cash flow means you are spending more money than you are making.

Why Does Cash Flow Forecast Matter?

If your cash flow is negative, it can be a sign that you’re heading towards bankruptcy. Weeks or months without enough money can destroy a company. Suppliers will be demanding payment, landlords start giving eviction warnings, and employees' salaries go unpaid.

So cash flow management is vital and you need a reliable forecast for that. Here's how you can do it:

Create a List of Assumptions

There are various things that will be associated with cash flow forecasting. These include:

• Cash flow from customers

• Amount of money to pay suppliers

• Cash flow needed to pay any other expenses

• Capital requirements

Each assumption varies depending on the type of business you're running. 

A home-based business like a blog or an online store will have a steady flow of money from customers, but the manufacturing business will have a lump sum of money at the end of the month, to make all the payments necessary for that month.

Note Your Anticipated Income

You need to look at the number of customers that you have, what the average purchase is, and how much people are willing to pay for your product or service.

You can also look at your competitors, and what kind of price you’re willing to offer. This helps you figure out if your price is competitive enough, or if you need to look for cheaper suppliers.

List Other Estimated Cash Inflows

There are also other cash inflows that you might not always account for. For example, starting a business you might get some cash from your family or a loan from a bank.

Likewise, terminating an investment, like selling a residential property or a car, can also generate cash for you.

Write Down Estimated Expenses

You need to assess your monthly expenses and divide them into different categories depending on what they are for. For example, wages, rent, utilities, and others.

You may need to do some research to find out your expenses by looking at your previous monthly bills, or by doing a market survey.

Calculate the amount of money your company is likely to spend on expenses. Then subtract this amount from the expected income, to reveal how much cash your business will have at the end of the month.

Put All the Information Together

Once you have the cash flow forecast, you need to put the numbers all together. You’re looking for the difference between your cash coming in and cash going out. 

If you have a positive cash flow, that means you’re generating enough cash to cover your expenses.

But if it’s negative, it means you are not generating enough cash.

If you have a negative cash flow, you need to take action. You need to make some adjustments to your business and your expenses so that you can have a positive cash flow. 


Cash flow is a term that covers the flow of money in and out of your business. It’s essential to your business's survival and success.

A cash flow forecast is a very important part of your business planning and it helps you figure out how much money you’re likely to have in the future.

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January 27, 2023
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