A cash flow forecast answers one question: will there be enough money in the bank to pay what is due, week by week or month by month? It does not need to be perfect to be useful. A rough forecast that warns you about a tight month eight weeks ahead is worth far more than a precise one you never get round to.
What you need before you start
- Your current bank balance (all business accounts together).
- A list of invoices you have sent that are still unpaid, with their due dates.
- Your regular costs: rent, salaries, subscriptions, loan repayments.
- Bills you have received but not yet paid.
- A sense of what you expect to sell in the coming months.
Step 1: Start with today's cash
Write down your bank balance today. Everything else is added to or taken away from this number.
Step 2: List the money coming in
For each of the next three months, list the cash you expect to receive (not invoice):
- Unpaid invoices, in the month you realistically expect payment. If a customer usually pays two weeks late, put their invoice two weeks later than its due date.
- New sales you expect, in the month the cash will arrive, not the month you make the sale.
- Anything else: a loan being paid in, money the owner is putting in.
Be honest here. Optimistic income is the most common reason forecasts go wrong.
Step 3: List the money going out
For each month, list the cash you expect to pay:
- Fixed costs: rent, salaries, subscriptions, loan repayments.
- Bills you have received, in the month they are due.
- Costs that come with the sales you expect: materials, stock, freelancers.
- Larger one-off payments: equipment, licence renewals, annual fees.
Step 4: Work out each month's closing cash
For each month:
Opening cash + money in − money out = closing cash
The closing cash of one month is the opening cash of the next. Laid out as a table, it looks like this:
| Month 1 | Month 2 | Month 3 | |
|---|---|---|---|
| Opening cash | 40,000 | 33,000 | 21,000 |
| Money in | 55,000 | 48,000 | 62,000 |
| Money out | 62,000 | 60,000 | 58,000 |
| Closing cash | 33,000 | 21,000 | 25,000 |
An example only, in AED.
Step 5: Look for the low point
The most useful number is the lowest closing cash in the forecast. In the example, Month 2 is the tight one. Ask yourself:
- Is the low point above the minimum you are comfortable keeping in the bank?
- If not, what could change it? Chasing a large invoice earlier, asking for a deposit on a new job, delaying a purchase, or agreeing later terms with a supplier.
Spotting a gap two months ahead gives you time to act calmly. Spotting it the week before payroll does not.
Step 6: Update it every month
A forecast goes stale quickly. Once a month, replace the past month's guesses with what actually happened, and add a new month at the end. Over time you will see where your guesses are usually wrong, and your forecasts will get better.
How Purpl helps
- A forecast built from your own numbers. Purpl's Forecast uses your last six months of actual income and costs to project your revenue, costs, profit and cash up to 12 months ahead.
- What-if scenarios. Change assumptions such as growth, how quickly customers pay you, and how quickly you pay suppliers, and see the effect on cash.
- Today's position at a glance. The dashboard shows cash in, cash out and net cash flow, and how much customers owe you, current and overdue.
- A Cash Flow statement for any period, showing where cash came from and where it went.
- Ask Purpl AI about your cash flow in plain language.
