How to Create a 12-Month Cash Flow Forecast — Step by Step

TL;DR: A cash flow forecast predicts how much money will come into and go out of your business each month. It helps you spot gaps before they become crises. You do not need complex software — a simple spreadsheet works. The key is updating it regularly.

What Is a Cash Flow Forecast?

A cash flow forecast is a month-by-month projection of all money coming in (inflows) and going out (outflows) of your business. The difference between the two shows you whether you will have enough cash to cover your obligations each month.

This is different from a profit and loss statement. You can be profitable on paper but still run out of cash if payments do not arrive when you need them.

Step 1: List Your Cash Inflows

For each month, estimate the cash you expect to receive:

• Customer payments (based on when they actually pay, not when you invoice)
• Recurring revenue or subscription income
• Tax refunds (GST/BAS refunds)
• Other income (grants, asset sales, interest)

Key point: Use realistic payment timing. If your customers take 45 days to pay on average, record the cash in the month it will actually arrive, not when you issue the invoice.

Step 2: List Your Cash Outflows

For each month, list all expected payments:

• Rent and utilities
• Staff wages and superannuation
• Supplier payments
• Loan repayments
• Insurance premiums
• Tax obligations (PAYG, GST, company tax)
• Equipment and vehicle costs
• Marketing and professional services
• Owner drawings

Step 3: Calculate the Monthly Balance

For each month: Opening balance + Inflows – Outflows = Closing balance

The closing balance of one month becomes the opening balance of the next. If any month shows a negative closing balance, you have a cash flow gap that needs addressing before it arrives.

Step 4: Identify and Address Gaps

When your forecast shows a gap, you have several options:

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

Step 5: Update Monthly

A cash flow forecast is only useful if it reflects reality. Update it at least monthly with actual figures, and re-forecast the remaining months. Over time, your predictions will improve as you understand your cash flow patterns better.

Common Mistakes

• Being too optimistic about payment timing — use actual DSO, not payment terms
• Forgetting irregular costs — quarterly BAS, annual insurance, tax instalments
• Not updating — a forecast from three months ago is fiction
• Confusing profit with cash — invoiced revenue is not cash until it arrives

When the Gap Is Structural

If your forecast consistently shows a gap between invoicing and receiving payment, the problem is structural — it will not fix itself. Invoice finance lets you close that gap by accessing the value of outstanding invoices immediately. With Fundtap, you choose which invoices to fund, receive an advance within hours, and the advance is settled when your customer pays.

See how Fundtap works →