Cashflow Forecasting - Best Tips for 2025 Financial Resolutions

Does your business have a cashflow forecast?

The New Year is a time for resolutions and good intentions. This month, we are going to share some suggestions of good financial habits that we believe are helpful for small businesses to adopt.

Our first suggestion centres around our favourite topic of cashflow. For those businesses that do not already have one, we hope that this New Year they resolve to Adopt a Cashflow Forecast.

Whatever your business does, we believe the most important financial document is the cashflow forecast. A cashflow does not tell you how much profit you have made or are likely to make; it tells you how much money you can expect to have in your bank account. We believe cash is more important, and easier to understand than profit.

Why is cashflow so important? It is important because it will tell you if your business has enough money to pay the wages, your suppliers or your VAT. These are critical activities for business continuity and credibility. The most common reasons that businesses fail is because they run out of money. And if you are looking to expand through borrowing, lenders will ask to see your cashflow forecast.

Your cashflow forecast will help you understand, and prepare for, the peaks and troughs in your bank balance.  Some payments may happen once a month, e.g. payroll, PAYE & pension payments.  Some payments may occur only quarterly, such as VAT, and some payments are only made once a year e.g. corporation tax or annual subscriptions.  Plotting these out onto a weekly forecast will demonstrate when the significant troughs are expected and can give you time to take corrective action.

How to prepare a cashflow forecast

You do not need to be an accountant to prepare a cashflow forecast, and you do not need specialist software. You just need to understand your business’s transactions. Here is a quick and easy way to prepare one.

• Plot it out on a spreadsheet, using the columns for the weeks and use the rows for the cash ins and outs
• Allocate a row to every significant, and repeating type of transaction – eg use a row for payroll, another row for PAYE, with further rows for VAT, loan repayments, receipts from each repeating customer, and payments to each significant supplier
• All figures should be gross figures including Vat (when applicable) so that they represent the amounts that will come into and out of your bank account
• Input forecasted values into the weeks that you expect to pay bills and be paid. This may be different from the weeks in which you receive or raise invoices.
• Start week 1 with the actual opening bank balance, total all the inflows and outflows for that week to give the closing bank balance at the end of that week.

Common mistakes in preparing a cashflow forecast

• Forecasting too far into the future. A very long forecast can be unwieldy, and prone to inaccuracy. A good length is 13 weeks as it will always include a VAT return for businesses on quarterly VAT.
• Over-optimism in relation to the forecasting of time. For example, expecting sales to grow too quickly, assuming projects will all run smoothly and be completed on time with no delays, assuming every customer will pay on the exact invoice due date.
• Too detailed. We suggest having a line for every significant transaction, but it is often helpful to lump together the smaller transactions into one cell. It is better to spend more time and effort in validating the large value transactions, than spending a disproportionate amount of effort on the lower values.

We hope that this provides some inspiration and motivation for you to adopt a cashflow forecast in your business in 2025.

If you'd like to read more about creating a Cashflow Forecast, read our other blog here.