What is a cashflow forecast?
A cashflow forecast estimates the money that will come into and go out of your business bank account over the coming weeks or months. Its job is to show the lowest balance you’ll reach, and when, so you can act before you get there.
Cashflow is not profit
A business can be profitable on paper and still run out of cash. Profit counts a sale when you invoice it. Cash only counts it when the money lands in your account, which might be 30, 60 or 90 days later.
The same gap works in reverse. VAT you collected last quarter, PAYE from last month’s payroll and your Corporation Tax bill are all cash you owe later for profit you made earlier. That’s why a good month can still be followed by a tight one.
What goes into a cashflow forecast
- Opening balance: the cash in your business bank accounts today.
- Money in: customer payments, placed on the date you expect them to actually arrive, not the invoice due date.
- Regular money out: wages, rent, loan repayments, subscriptions and regular suppliers.
- Tax: PAYE and pension contributions, VAT, and Corporation Tax, each on its real due date.
- One-offs: annual insurance, equipment, bonuses, a deposit on new premises.
- Closing balance: opening balance, plus money in, minus money out, for each period.
How far ahead should you forecast?
Most small businesses get the most value from two views:
- A 13-week forecast, week by week. This covers the next quarter: every payroll, the next VAT payment and most supplier cycles. It’s detailed enough to act on and short enough to be accurate.
- A 12-month forecast, month by month. Useful for hiring, big purchases, seasonality and conversations with lenders or investors.
Weekly matters more than most owners expect. A monthly forecast can show a healthy month-end balance while hiding a dip in week two, when payroll goes out before customers pay.
How to read one
Ignore the end balance at first. Look for three things:
- The lowest point. What is the smallest balance you’ll reach?
- When it happens. How many weeks away is it? That’s how much time you have to act.
- Why it happens. Which payment lands in the dip, and which receipt is late?
If the lowest point is below the cash buffer you want to keep, you have a decision to make now, while you still have options.
The four mistakes that make forecasts wrong
- Using invoice due dates. Customers rarely pay on the due date. Use how each customer actually pays.
- Forgetting tax. VAT and PAYE are the most common causes of an unexpected dip.
- Building it once. A forecast is only useful if it’s updated, ideally weekly.
- Never checking it. Compare last week’s forecast with what actually happened. The gaps show you where your assumptions are off.
How Lucid does this
Lucid connects to Xero, builds your 13-week forecast in minutes using how each customer really pays, places tax on its real dates, and checks itself against your bank every week. Then it tells you in one line whether you need to do anything.
Common questions
Is a cashflow forecast the same as a budget?
No. A budget sets targets for income and spending, usually for a year. A cashflow forecast predicts when cash will actually move in and out of your bank, so you can see shortfalls before they happen.
Do I need a cashflow forecast if I’m profitable?
Yes. Profitable businesses run out of cash too, usually because customers pay late or tax bills land at the same time as payroll. A forecast shows those timing gaps.
How accurate is a cashflow forecast?
The next few weeks are usually accurate, because most payments are already known. Accuracy falls further out. Updating weekly and comparing forecast with actual keeps it reliable.
How often should I update it?
Weekly for a 13-week forecast. Monthly is enough for a 12-month view.
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