Cash flow forecast: how to spot a cash dip 8 weeks ahead
Most small businesses don’t close for lack of sales, but because one day there isn’t enough money to pay what is due. And almost always, that day could be seen coming. A cash flow forecast is made for exactly that: so the problem shows up in a spreadsheet weeks before it shows up in the bank.
What a cash flow forecast is
It is a list, day by day or week by week, of how much money you will have in the bank. You start from today’s balance, add the collections you expect and subtract the payments you have committed to. Nothing more.
It is neither the income statement nor the annual budget. A sale collected in 90 days doesn’t count until it is collected, and a payroll counts the day it goes out, not the month it belongs to. That is why a company can make money and still run out of cash (we explain it in Profit is not cash).
Why 8 weeks
It is a horizon that works well for a small business, for two reasons:
- It is close enough to be reliable. The invoices you will collect and pay in the coming weeks almost all exist already: they have been issued or received. There is nothing to guess.
- It is far enough to react. If you see that in five weeks you will be short by €18,000, you have time to call customers, negotiate with a supplier or ask for financing without rushing. If you see it the day before, all you have left is the overdraft.
How to do it, step by step
- Start from today’s real balance, adding up all the bank accounts you use to operate.
- List the outstanding collections with their due date: customer, amount and day. If a customer usually pays late, put them on the date they actually pay, not the one on the invoice.
- List the committed payments: suppliers with their due dates, payroll, social security, rent, loan installments, utilities and any tax payments you already know about.
- Add and subtract day by day. Each day’s balance is the previous day’s balance plus what comes in minus what goes out.
- Look for the lowest point. That is the figure that matters: the day you will have the least money and how much.
An example with round numbers:
| Week | In | Out | Closing balance |
|---|---|---|---|
| Today | €32,000 | ||
| 1 | €14,000 | €9,000 | €37,000 |
| 2 | €6,000 | €31,000 | €12,000 |
| 3 | €8,000 | €22,000 | −€2,000 |
| 4 | €25,000 | €7,000 | €16,000 |
In week 2 payroll goes out and in week 3 a large order from the main supplier falls due. The company sells well and recovers in week 4, but in week 3 it is short by €2,000. That is the dip.
What to do when a dip appears
The first thing is to know how big it is and how many days it lasts. With that, the reasonable order is usually:
- Collect what is overdue. Invoices that should already have been collected are the fastest and cheapest money. Start with the largest amounts. You have concrete ideas in How to get paid sooner without losing customers.
- Talk to a supplier to move a specific payment by a few days, warning them before it falls due and not after.
- Use short-term financing if the above isn’t enough. First, compare what each option costs (credit line, factoring or confirming).
What is not advisable is to delay payroll, social security, loan installments or taxes. The consequences (surcharges, seizures, loss of trust from the team or the bank) cost far more than the dip.
How often to update it
A forecast is a snapshot, and it expires. The practical approach is to redo it at least once a month, and every week if you already see a dip coming. Each time, compare what you forecast with what happened: if a customer pays late again, the next forecast should account for it.
Frequently asked questions
What is the difference between a cash flow forecast and a budget?
A budget looks at the year’s income and expenses when they are generated. A cash flow forecast looks at when money comes into and leaves the bank. You can meet your budget and still have a cash dip.
Do I need software to do it?
No. A spreadsheet with today’s balance, the outstanding collections and the committed payments is enough. What matters is using real dates and repeating it every month.
What do I do if the forecast is negative for several weeks in a row?
If it is not a one-off dip but something that repeats, the problem won’t be solved just by collecting sooner: it usually means the margin doesn’t cover the fixed costs or that you are financing your customers for too many days. It is worth reviewing the cash cycle and the margins calmly.