Q&A - What is a cash flow forecast?

The cash flow forecast predicts the net cash flows of the business over a future period.

The forecast estimates what the cash inflows into the bank account and outflows out of the bank account will be.

The result of the cash flow forecast is an estimate of the bank balance at the end of each period covered (normally this is for each month).

An example of a simple cash flow forecast is shown below:

A business uses a cash flow forecast to:

Identify potential shortfalls in cash balances – for example, if the forecast shows a negative cash balance then the business needs to ensure it has a sufficient bank overdraft facility

See whether the trading performance of the business (revenues, costs and profits) turns into cash.

Analyse whether the business is achieving the financial objectives set out in the business plan (which will almost certainly include some kind of cash flow budget)