What is a cash flow forecast?

Definition

A cash flow forecast is a forward look at cash that will come in and cash that will go out, before those movements happen. On the books, this is a plan built from expected receipts and payments, not the historical Statement of Cash Flows and not the month's leftover on the Income Statement.

A neighborhood grocer reads it when Friday payroll and Monday's produce truck both have to clear. The question is whether cash will be there on those days, not whether last month was profitable.

It is a projection, not a snapshot of cash today. The Balance Sheet shows the starting cash; this page is the walk forward from that starting point.

Stay with receipts and payments that have not happened yet. A week-by-week grid that always covers the next quarter is a later, tighter version of this same idea.

Where it shows up

Cash flow: Related to receipts and payments that have not happened yet.

Balance Sheet: Related to today's cash, the starting point.

P&L: Related to future profit, which is not the same calendar.

See also: Thirteen-Week Cash Flow Forecast · Cash Position · Forecast

When you look at your Statement of Cash Flows, you are looking backward at cash that already moved. This page looks forward from the cash sitting on the Balance Sheet today.

When the projection is tight, Friday payroll and the produce truck may not both fit. When it is loose, the grocer can see a buffer before the next large payment.

The Income Statement does not print this walk. Revenue booked this week can still sit in accounts receivable until a customer pays.

Accounts payable on the Balance Sheet is a hint about payments coming due. The projection is the calendar of when those bills, and payroll, actually leave the bank.

How it works

Start with cash on hand today. List expected receipts by period, then list expected payments by the same periods.

Add receipts and subtract payments, period by period. Each period's ending cash becomes the next period's beginning cash.

Stay with cash dates, not invoice dates. A sale on Monday is a receipt only when the money clears; a produce bill is a payment only when the grocer's bank account is charged.

Payroll expense often hits on a fixed weekday. A produce truck may clear on a different weekday, and both have to fit the same week's cash.

The starting cash comes from cash and cash equivalents on the Balance Sheet. Everything after that line is a guess you update as deposits and bills land.

Do not copy last month's leftover as next month's cash. Profit and this walk do not share a calendar.

A projection can be weekly, monthly, or mixed. The grocer who has to fund Friday and Monday usually thinks in weeks, even when the annual budget is monthly.

This page stays on the forward projection of receipts and payments. The rolling quarter grid that rebuilds every week is a tighter cousin, not this page.

Example

Oak Street Grocery starts a three-week look with $20,000 in the operating bank account. Week one receipts are $18,000 and payments are $16,000, so ending cash is $22,000.

Week two receipts are $22,000 and payments are $25,000, including a heavy produce order. Ending cash falls to $19,000.

Week three receipts are $19,000 and payments are $17,000. Ending cash recovers to $21,000.

Friday payroll sits inside those payment totals. Monday's produce truck sits there too, which is why a week can go negative on cash even when the month still looks fine on the Income Statement.

The grocer does not post this walk to the books. It is a worksheet that starts from today's cash and is updated when a deposit slips or a truck is delayed.

If week two receipts had been $25,000 instead of $22,000, ending cash that week would have been $22,000. The dip would have been smaller, and week three would have started from a sturdier number.

Common mix-ups

This projection is not the same as the Statement of Cash Flows. That statement is history; this page is a look forward.

This projection is not the same as the month's leftover. Profit can be up while a given week still cannot cover payroll and a truck together.

This projection is not the same as a rolling quarter grid. That tighter calendar is a way to build this look; it is not the only form this look can take.

Related terms

• Thirteen-Week Cash Flow Forecast: A rolling week-by-week cash projection covering the next quarter.
• Cash Position: The amount of cash on hand at a given moment across all accounts.
• Accounts Receivable Aging: A report bucketing open invoices by how long they have been outstanding.
• Accounts Payable Aging: A report bucketing unpaid vendor bills by how long they have been outstanding.
• Cash Runway: How many months current cash will last at the present burn rate.
• Forecast: An updated projection of where the numbers are actually heading.
• Scenario Planning: Modeling several plausible futures to see how the numbers hold up.
• Working Capital: Current assets minus current liabilities, showing short-term operating cushion.