How to Create a 12-Month Cashflow Forecast, Step by Step

TL;DR: A cash-flow forecast is a month-by-month projection of money in and money out. It helps you spot gaps before they become crises. You don't need special software, a simple spreadsheet works; the discipline is updating it regularly.

What is a cash-flow forecast?

A month-by-month projection of all money coming in (inflows) and going out (outflows). The difference shows whether you'll have enough to cover obligations each month. It's not a profit and loss statement, you can be profitable on paper and still run out of cash if payments don't arrive when you need them.

"Profit and cash are not the same thing, and the gap between them is where good businesses get caught out. A forecast is just the habit of looking at the cash version of the future before it arrives."

Matt Peacey, Founder & CEO, FundTap

Step 1, List your cash inflows

For each month, estimate cash you'll actually receive: customer payments (timed to when they pay, not when you invoice), recurring revenue, GST/BAS refunds, other income. Use realistic timing, if customers take 45 days on average, record the cash in the month it lands.

Step 2, List your cash outflows

Rent and utilities, wages and super, supplier payments, loan repayments, insurance, tax (PAYG, GST, company tax), equipment and vehicles, marketing and professional services, owner drawings.

Step 3, Calculate the monthly balance

Opening balance + Inflows − Outflows = Closing balance. Each month's closing balance becomes the next month's opening balance. A negative closing balance is a gap to address before it arrives.

Step 4, Identify and address gaps

• Accelerate inflows, invoice sooner, offer early-payment incentives, use invoice finance
• Delay outflows, negotiate longer supplier terms
• Reduce costs, cut or defer non-essentials
• Arrange funding, overdraft, loan, or invoice finance as a bridge

Step 5, Update monthly

A forecast is only useful if it reflects reality. Update at least monthly with actuals and re-forecast the remaining months. Predictions sharpen as you learn your patterns.

Common mistakes

• Being too optimistic on timing, use actual DSO, not terms
• Forgetting irregular costs, quarterly BAS, annual insurance, tax instalments
• Not updating, a three-month-old forecast is fiction
• Confusing profit with cash, invoiced revenue isn't cash until it arrives

When the gap is structural

If your forecast consistently shows a gap between invoicing and being paid, it won't fix itself. Invoice finance closes it by releasing the value of outstanding invoices immediately, with FundTap, an advance in hours (median first fund: 3 days from sign-up; FundTap data, 2026), settled automatically when your customer pays.

See how FundTap works → Rated 5★ on Google (117 reviews) · 4.9★ on the Xero App Marketplace (107 reviews).

Frequently asked questions

What is a cash-flow forecast?

A month-by-month projection of money coming in and going out, showing whether you'll have enough cash to cover obligations each month.

What's the difference between a cash-flow forecast and a profit and loss statement?

A P&L shows profitability; a forecast shows cash timing. You can be profitable yet run out of cash if payments arrive late.

How do I create a 12-month cash-flow forecast?

List monthly inflows (timed to when cash actually arrives) and outflows, then calculate opening + inflows − outflows = closing balance for each month, and update with actuals monthly.

What software do I need?

None specifically, a simple spreadsheet works. The discipline that matters is updating it monthly with real figures.

What are the most common forecasting mistakes?

Optimistic payment timing, forgetting irregular costs like BAS and insurance, never updating the forecast, and confusing invoiced revenue with cash received.

What if my forecast keeps showing a cash gap?

A persistent gap between invoicing and payment is structural. Invoice finance closes it by releasing the value of outstanding invoices within hours.