Before You Start

This guide assumes you have your current Income Statement and Balance Sheet ready from your accounting software.

Overview

35 min
Setup Time
Intermediate
Difficulty
Monthly
Review Frequency

What You’ll Learn

  • How to build a robust 12-month cash flow forecast
  • Techniques for modeling different business scenarios
  • Setting up and tracking budget vs. actuals performance
  • Identifying and addressing potential funding gaps proactively

1. Preparation Steps

Gather these essential financial documents and define your key assumptions:

Required Financial Data

  • Historical Income Statements (last 12-24 months)
  • Historical Balance Sheets (last 12-24 months)
  • Accounts Receivable Aging Report
  • Accounts Payable Aging Report

Key Business Assumptions

  • Sales growth rates (by product/service)
  • Average payment terms (for customers and suppliers)
  • Planned capital expenditures
  • Anticipated hiring plans

2. Choosing Your Forecasting Method

You have two primary approaches, each with distinct advantages and disadvantages.

Method A: Manual Spreadsheet Modeling (Excel/Google Sheets)

This involves building your forecast from scratch.

Pros:
  • High customization and flexibility.
  • No software costs.
  • Deep understanding of model mechanics.
Cons:
  • Time-consuming to set up and maintain.
  • Prone to human error.
  • Scalability challenges for complex businesses.

Method B: Dedicated Forecasting Software (Float, Fathom, etc.)

These are specialized tools designed for financial modeling.

Expert Tip: For most growing businesses, dedicated forecasting software like Float or Fathom provides superior accuracy, efficiency, and scenario analysis capabilities. They integrate directly with your accounting software to pull real-time data, reducing manual effort and errors.

3. Step-by-Step: Building Your Forecast Model

Regardless of your chosen method, the core principles of building a robust 12-month forecast remain similar. Focus on understanding the drivers behind your revenue and expenses.

Here is a simplified data structure for a monthly forecast entry.

{
  "month": "2025-01",
  "starting_cash": 100000,
  "inflows": {
    "sales_revenue": 50000,
    "loan_proceeds": 0,
    "other_income": 1000
  },
  "outflows": {
    "cogs": 20000,
    "payroll": 15000,
    "rent": 3000,
    "marketing": 2000,
    "other_expenses": 1000
  },
  "ending_cash_projection": 110000
}

4. Setting Up Your Initial Budget

Establishing a clear budget is crucial for guiding your financial decisions and measuring performance against your forecast.

  1. 1

    Define Budget Categories

    Align your budget categories with your chart of accounts for easy tracking and comparison.

  2. 2

    Allocate Funds

    Assign monthly or quarterly targets for each income and expense category based on your forecast and strategic priorities.

  3. 3

    Integrate with Accounting Software

    If possible, set up your budget directly within QuickBooks Online or similar software for automated tracking.

Common Pitfall: Static Budgeting

Avoid setting a budget once and forgetting it. Your budget should be a living document, reviewed and adjusted regularly to reflect changing business conditions.

5. Tracking & Analysis

Regularly compare your actual financial performance against your forecast and budget to identify variances and make informed adjustments.

Monthly Review Checklist

  • Compare actual cash inflows vs. forecast
  • Analyze actual cash outflows vs. budget
  • Identify significant variances and their root causes
  • Adjust future forecast periods based on new information

Need Help?

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Need assistance in setting up your cash flow forecast or budget? Our financial experts are here to help.

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