Profit on paper is not cash in the bank. A forecast tells you which weeks are going to be tight.
Cash flow forecasting projects when money arrives and when it leaves, so you can cover payroll, stock and growth without a surprise. It is the difference between managing cash and reacting to it.
Two ways to build one
A direct forecast lists expected receipts and payments by date, which suits the short term. An indirect forecast starts from net income and adjusts for non-cash items and working capital.
Most teams run both: a 13-week direct forecast for liquidity, and a longer indirect model tied to the annual budget.
The assumptions underneath
Base collections on your actual days sales outstanding and on how each customer really pays. Time the outflows to payroll dates, rent, loan payments and seasonal supplier terms.
Build a base, an upside and a downside case. Same model, three sets of assumptions, so leadership can see the range.
- Opening cash by account
- Expected customer collections by week
- Payroll, rent and loan payments
- Planned capital spend and financing events
Working capital moves the most
Receivables, payables and stock can swallow or release large amounts of cash in a few weeks. Forecast those balances explicitly instead of holding them flat.
For project businesses, customer deposits and milestone billing change the timing more than anything else available to you.
Check it every week
Compare forecast to actual weekly and adjust the assumptions. A large variance is a signal to fix something: collections, spending controls, or the size of your buffer.
Share a summary with department heads, so spending decisions get made knowing what cash is actually there.
Written by the team at Ambivo, a business platform that keeps CRM, accounting and ERP on one customer record. This article is general guidance on the topic rather than a description of Ambivo features.