Glossary · UK
What is Cash Flow Forecast?
A projection of the cash expected to flow into and out of a business over a future period, used to identify funding gaps before they occur rather than relying on profit alone.
Full Definition
A cash flow forecast is a projection, usually built week by week or month by month, of the cash a business expects to receive (from sales, loans drawn down, asset sales, and so on) and pay out (to suppliers, staff, HMRC, lenders and owners) over a future period, typically the next 12 to 13 months for a business plan or the next 13 weeks for tighter short-term cash management. Unlike a profit and loss forecast, which records income and expenses when they are earned or incurred, a cash flow forecast tracks money only when it is actually expected to move, which is why a profitable, growing business can still run out of cash if customers pay slowly, stock has to be bought well ahead of sale, or a large tax or VAT bill falls due before enough cash has come in to cover it. Lenders and investors routinely ask to see a cash flow forecast alongside a business plan, both to assess whether the business can service proposed debt and to identify the size and timing of any funding gap the business needs to bridge, whether through an overdraft, invoice finance, a term loan or additional equity. Because forecasts rely on assumptions about the timing of receipts and payments, prudent businesses build in a margin of safety, model a downside scenario alongside the expected case, and update the forecast regularly against actual results (a rolling forecast) rather than treating it as a one-off exercise done only at the start of the year.