Cash flow forecast basics for a small business

A cash flow forecast is a week-by-week estimate of money in and money out, starting from the balance actually in your account today. business.gov.au describes a cash flow forecast as an estimate of your future sales and costs, useful for working out whether income will cover costs, preventing shortages and avoiding debt. Thirteen weeks is the span most small operators find worth the effort: far enough ahead to do something about a problem, close enough that the numbers are still guesses you can defend.

It is not accounting. It is four rows repeated across a row of weeks, and building the first one takes about an hour once your invoices and expenses are in one place.

General information, not tax advice. The ATO is the authority - see ato.gov.au or ask a registered tax or BAS agent.

Why a profitable business runs out of money

Profit and cash answer different questions and move at different times. Profit asks whether the work was worth doing. Cash asks whether you can pay for things this month. A business can be comfortably profitable on paper and still be unable to meet a bill, because the profit is sitting in invoices nobody has paid yet.

The gap has three usual causes. Customers pay later than the terms say. Money leaves before it arrives, since materials, subcontractors and software are paid for ahead of the invoice that recovers them. And amounts that were never yours, notably GST collected on your sales, sit in the account looking like working capital until the quarter falls due.

Which method you use to count income makes the gap wider or narrower on paper without changing the bank balance at all, and that distinction is the subject of cash vs accruals accounting. A forecast sidesteps the argument, because it only ever tracks money actually moving.

The 13-week layout

Four rows, thirteen columns, one column per week.

Opening cash. What is in the account at the start of the week. business.gov.au’s cash flow statement guidance puts this as the opening bank balance in the first period and the closing balance of the previous period in each one after, which is the only rule that makes the sheet self-correcting.

Cash in. Money you expect to actually receive that week.

Cash out. Money you expect to actually pay that week.

Closing cash. Opening plus in, minus out. It becomes next week’s opening figure.

business.gov.au’s downloadable template runs on months, and its structure is the same one described here: opening balance, cash incoming, total incoming, cash outgoing, total outgoing, and the resulting balance. Weeks suit a small business better because a monthly view hides the fortnight in the middle where the account went to nothing and came back. Its guidance also asks you to state clearly whether figures include or exclude GST, and to label and explain estimated figures. Both matter more than they sound: a sheet mixing GST-inclusive receipts with GST-exclusive costs will be wrong by roughly a tenth in one direction, which is the same size as the dip you are trying to spot.

Cash in: the date they will pay, not the date you invoiced

This is the row people get wrong, and it is the whole point of the exercise.

An invoice does not belong in the week you issued it. It belongs in the week you realistically expect the money, which for a client on 30-day terms who has never once paid inside 30 days is not week four. Use the behaviour you have observed rather than the terms you wrote. If a client habitually pays in 45 days, forecast 45.

Take the open invoices, put each in its expected payment week, then add work not yet invoiced with two dates in mind: when you will issue the invoice, and when payment would then arrive. Retainers and recurring work are the easy part. One-off jobs still in quoting are the part to be conservative about.

Anything you can do to move these dates left is worth more than anything you do to the sheet itself, which is the subject of how to get invoices paid on time.

Cash out, including the two everyone forgets

Start with the fixed and predictable: rent, insurance, software subscriptions, phone, loan or lease repayments, and your own drawings, which are real money leaving the account whatever they are called. business.gov.au’s list runs along the same lines, naming accountant fees, advertising and marketing, purchases, rent and rates, and utilities.

Then the variable: materials, subcontractors, fuel, and anything else that scales with the work you have coming. Put these in the week you pay for them, which is usually earlier than the week the related invoice gets paid.

Then the two that sink forecasts because they are invisible until they are urgent.

GST you have collected. On a taxable sale you collect 10% that was never income. It sits in the account until the activity statement falls due, and a forecast that treats it as available cash will show a comfortable position right up until the quarter arrives. Put the expected net GST payment in the week it is due. The timing and the labels are in BAS due dates and how to prepare.

Income tax. Whether it is paid as PAYG instalments during the year or as a bill after lodgement, it is a scheduled outflow rather than a surprise, and forecasting it is what stops the set-aside being spent. The mechanics are in PAYG instalments explained for sole traders, and how much to set aside for your own circumstances is a question for a registered tax agent rather than a rule of thumb from an article.

Handling what you do not know

Uncertain income is not a reason to skip the forecast. It is a reason to build one case rather than three.

Forecast the conservative case: the work already contracted, invoiced or firmly scheduled, with payment dates based on how those clients have actually behaved. Leave out the job you are pretty sure will land. If the conservative case holds up, everything else is upside. If it does not, you have found the problem while there is still time to act on it, which is the entire return on the hour spent.

Label estimates as estimates, as business.gov.au’s guidance asks, so that next month you can tell which numbers were known and which were hoped for. That is also how the forecast gets more accurate: comparing last month’s estimates against what happened tells you exactly which way you are biased.

Reading it, and keeping it alive

Read the closing cash row and nothing else at first. You are looking for the lowest number and the week it happens.

An illustration, not data. Assume a forecast whose closing balance sits comfortably positive for six weeks, drops to a few hundred dollars in week eight, then recovers. Week eight is the only fact that matters, and the useful response starts in week four: chase the invoices due before it, ask a client whether an earlier partial payment is possible, move a discretionary purchase past it, or arrange finance while the position still looks strong. A shortfall seen five weeks out has cheap solutions. The same shortfall seen on the day has expensive ones.

Then update it weekly, which takes minutes rather than the original hour. Replace the estimate for the week just gone with what actually happened, roll the window forward one week, and adjust payment dates for anything that has slipped. A forecast built once and never touched is worse than none, because it is confidently wrong. The habit is the deliverable.

How Apsis helps

Apsis does not build a thirteen-week forecast for you, but its business overview carries a short cash-flow view: expected receipts from sent and part-paid invoices falling due over the next 30 days, grouped by week. That covers the front of the cash-in row, and it holds the numbers you build the rest from. Invoices record what was billed, what has been paid, what is part paid and what is overdue, so the cash-in column is populated from real documents rather than memory, and the invoice list filters by status and searches by number, title or client. Expenses with receipt upload give you the cash-out history that tells you what a normal week costs, which is the best available basis for estimating the next thirteen. GST is computed from the line items, so the amount you have collected is visible rather than inferred. Invoices, clients and expenses are on the free plan, which covers 5 clients and 20 invoices a month. On the paid plan, the tax module adds a GST and BAS view and an income tax estimate, which is where the two easiest-to-forget rows of your cash-out column come from.