The business owner's guide to cashflow forecasting

A budget is about profit over a year: what you expect to earn and spend, usually by month, on an accruals basis, so an invoice counts the moment it is raised. A forecast is about cash and timing: it counts money on the day it moves, so the same invoice appears when the client pays. That single difference is why a business can be comfortably ahead of budget and still short of cash in week six. Use the budget to decide whether the year is on track, and the 13-week forecast to decide whether next month's payroll clears.

Yes, and gross. Money arrives in your bank including VAT and leaves including VAT, so a forecast built on net figures flatters your balance for weeks and then hits you with a bill that appears from nowhere. Show receipts and payments gross, then add the VAT payment itself as its own row in the week it leaves. Quarterly VAT is payable one calendar month and seven days after the end of the VAT period, so a quarter ending 30 June is due by 7 August. If you pay by direct debit, HMRC collect three working days after that date. Put it in the week they take it.

Yes, more so. Lumpy income is exactly the condition a 13-week forecast exists for, because steady income needs no early warning: next month looks like this one. Split the income rows in two, confirmed and expected, and be honest about which is which. Then read the closing balance in the weeks where nothing confirmed lands. It will tell you how many weeks of fixed costs you can cover without a new sale, and that number is what determines how calmly you can price, negotiate and turn down bad work.

You have four levers, and they run in this order. Pull cash forward: chase the invoices falling due inside that window now, before their due date, and ask for part payment on long jobs. Push cash back: move anything discretionary — equipment, stock, a hire — beyond the low point. Cut the outflow: look at what leaves on subscription each month that nobody uses. Only then borrow. If you need a facility, apply while the forecast still shows a healthy position. Lenders decide faster, and on better terms, before the shortfall arrives.

As a starting point, yes. Both will project forward from your invoices, bills and repeating transactions, which saves you the first hour of data entry. What neither can know is that one client always pays a fortnight late, that the equipment order is optional, or that you intend to take a dividend in week nine. Every software projection assumes invoices are paid on their due date, and that is the one assumption a cash-tight business cannot afford to make. Export the projection, then move each payment date to the day your clients usually pay, and add the rows the software has no way of seeing: drawings, dividends, the quarterly VAT payment, and PAYE and NIC, due by the 22nd of the following tax month if you pay electronically.

Both, for different decisions, and they are not the same document. The 13-week forecast is operational: weekly, detailed, built from named invoices and known bills, used to decide what happens this month. An annual cashflow projection is directional: monthly, built out of your budget, used for the bigger questions such as whether you can afford a hire, a lease or a loan. The trouble starts when one is asked to do the other's job. An annual projection will never warn you about a tight Tuesday, and 13 weeks will never tell you whether next year's growth plan is fundable.