Starting a cash flow forecast can seem daunting, but don’t let that stop you! Our advice is to simply begin. Keep in mind that even experienced professionals produce imperfect forecasts.

Profit and loss report

First things first. Let’s run a Profit and Loss report in Xero for a recent month and compare it to previous months. Just follow these instructions.

After clicking Update, export to Excel. Now you’ve got a good starting point, and something in writing!

It’s important to remember that past trends can help predict future events. That’s why the Excel spreadsheet you’ve created is the basis for your future forecast. Just imagine the month columns are for NEXT year!

Entering forecasted figures

Take a closer look at your income and expenses on a line-by-line basis. Adjust each month up or down where needed, focusing on larger items or things with specific timing.

  • Income may increase or decrease during holiday periods, or with the change in seasons
  • Some expenses may fluctuate depending on the value of sales (for example, purchases and commissions)
  • Think about the timing of expenses:
    • Memberships may be once a year
    • Your power bill is likely to be higher in winter
    • Rates are paid four times a year
    • Large, planned maintenance costs should be included
    • Do you pay less wages during the Christmas period?
  • You may be considering extending your product range. Factor in how much additional revenue you expect and how your costs may change.
  • Maybe you’re thinking of hiring another employee. What are the costs and benefits? Will they generate more business income, or free up some of your time?

Balance sheet

Now that we’ve sorted out the income and expenses, we look to what we expect to change on the balance sheet.

  • Do you plan on buying or selling assets? If so, enter the expected timing of money going out or coming in.
  • Will you take out a business loan? If so, when will it be received? What will the monthly repayments be?
  • How about your own personal expenses? Allow for a regular transfer to your personal bank account (drawings).

Tax payments

If you have a good idea of your expected tax payments, make sure to include them in your Profit & Loss section, keeping in mind that provisional tax is due in August, January, and May. Terminal tax is due in April the following year.

What about the bank balance?

This is one of the main reasons for preparing a forecast. Based on your expected inflow and outflow of cash, will you need an overdraft facility? Might you have excess funds you can invest elsewhere?

Working out your month-end closing balance is a piece of cake for regular Excel users. Add up your cash received and paid each month, and present it in an easy-to-read table. Take a look at the table below – see how the opening balance in May ($200) equals the closing balance in April? 

April May June
Opening bank balance
Add cash received


Less cash paid out

Closing bank balance




Forecasted figures

Your forecast is going to change – and that’s OK. We just want to get the ball rolling. It’s totally normal for it to evolve and become more accurate as time goes on. 

We’re here to help

If you need help with your cash flow forecast, we’ve got you covered. We can create a straight-forward Excel spreadsheet, or develop a more complex model to help you explore different scenarios (“what if…?”). Our goal is always to help you better understand how your business works. Reach out and we can discuss what’s going to work best for you.

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