The short answer. A business cash flow forecast shows cash in and cash out by month, starting from the real bank balance. Lay it out as receipts, payments, net cash flow, opening and closing cash and your overdraft headroom, for 12 to 36 months. Put VAT, PAYE and corporation tax in the month they are paid, not the month they arise.
The layout
| Section | Lines | When to count it |
|---|---|---|
| Opening cash | Bank balance at the start of the month | Month one agrees to the bank statement |
| Receipts | Sales receipts including VAT, by customer or type; other income; loans in; money you put in | When the customer pays, not when you invoice |
| Payments | Suppliers and materials; net wages; PAYE and National Insurance; pension; rent and rates; utilities, insurance and other overheads; VAT to HMRC; corporation tax; loan and lease repayments and interest; equipment; dividends or drawings | When the money leaves the bank |
| Net cash flow | Receipts less payments | Each month |
| Closing cash | Opening cash plus net cash flow | Becomes next month’s opening cash |
| Facility and headroom | Overdraft limit, and closing cash plus the limit | The line a lender looks at first |
The dates HMRC takes the money
- VAT. For quarterly returns, the return and the payment are due one calendar month and seven days after the end of the quarter.
- PAYE and National Insurance. Paid monthly, by the 22nd of the next tax month if you pay electronically. Tax months run from the 6th to the 5th.
- Corporation tax. For most small companies, due nine months and one day after the end of the accounting period.
- Business rates. Usually ten monthly instalments from April, unless you ask your council for twelve.
Seven lines people miss
- VAT on sales and purchases. Receipts and supplier payments include VAT, then the net amount goes to HMRC on the quarter’s due date.
- When customers really pay. Use the days your customers actually take, not your payment terms.
- Annual and quarterly bills. Insurance, rent paid quarterly in advance, accountancy and software renewals.
- Corporation tax, nine months after the year end, often landing in a quiet month.
- Loan repayments, the capital as well as the interest.
- Drawings or dividends. What you take out is cash leaving the business.
- Seasonality. A straight monthly average hides the low month.
Monthly or weekly?
Monthly for 12 to 36 months is what most lenders ask for. Add a 13-week weekly view when cash is tight or a big payment is coming. Then find the lowest balance and the headroom: see how to read the low point in your forecast.
Test it before anyone else does
Run a downside case with lower sales and slower payers, and check the headroom still holds. Tie it out: the opening cash to the bank statement, the receipts to the sales forecast plus VAT, and the closing cash to the forecast balance sheet if you have one.
A template, or a forecast built for you
A free template, such as the one Start Up Loans provides, is fine for a simple start-up. For a lender, I build business cash flow forecasts from £649: monthly for 36 months with a 13-week view, tax on the dates it is paid, a downside case and the headroom. You can see a sample business cash flow forecast (PDF).
Questions
What is the difference between a cash flow forecast and a profit forecast?
Profit counts sales when you invoice and costs when you incur them. A cash flow forecast counts them when the money moves. A profitable business can run out of cash if customers pay late, or if VAT and tax fall in the same month.
How far ahead should a business cash flow forecast go?
Lenders usually want at least 12 months, often 24 to 36 for a term loan, monthly, with a weekly view of the next 13 weeks if cash is tight.
Should the forecast include VAT?
Yes, if you are VAT registered. Receipts and supplier payments include VAT, and the net VAT is paid to HMRC on the quarter's due date.
Rather have it built for you?
A business cash flow forecast for your bank: 36 months, a 13-week view, tax on the right dates and a downside case. From £649, first draft in 5 working days.
Business cash flow forecastsGet a fixed quote