Plain definition
A cash-flow forecast shows when cash is expected to enter and leave the company, and how each movement changes the running cash balance.
Projected closing cash balance = opening cash balance + expected cash inflows − expected cash outflows
A useful forecast follows expected collection and payment dates. It does not simply copy the dates on which revenue and expenses are recorded in the income statement.
Worked example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
A company opens the month with .
It must pay a supplier on day 10. It expects to collect from a customer on day 25.
| Opening cash | |
|---|---|
| Supplier payment due | |
| Projected balance before funding |
| Opening cash | |
|---|---|
| Supplier payment | |
| Day 25 customer collection | |
| Projected closing cash |
This is a funding gap. Without funding or a changed payment date, the company cannot pay the supplier in full on day 10.
The month can still end with , but only if the company first solves the day-10 funding gap.
Why it matters
Timing matters.
A dated forecast shows whether the company can reach that point without missing a payment.
Monthly totals can hide timing risk. A company may report positive closing cash and still be unable to meet an obligation on its due date.
A dated forecast reveals the risk early enough for management to accelerate collections, reschedule payments, reduce spending, or arrange funding.
The lowest projected cash balance often matters more than the closing balance.
Practical consequence
Maintain a rolling 13-week cash-flow forecast.
Update it weekly, and more often when cash is under pressure.
For every expected cash movement, record:
- The amount
- The expected date
- Whether cash comes in or goes out
- The person responsible for confirming it
- The confidence level
Compare forecast movements with actual bank movements, and investigate material variances.
Set a minimum cash buffer. Manage the lowest projected balance against that buffer, not the month-end balance alone.
Try your own numbers
Map expected cash in and out week by week, then see the lowest point before it arrives.
13-week cash-flow forecast