The new year is around the corner, and while many business owners are setting goals for 2025, successful ones are turning those goals into actionable plans. One of the most powerful tools for realistic planning is a cash flow forecast–and now is the perfect time to create one.
Think of a cash flow forecast as a combination of budgeting and planning that helps you spot potential problems before they happen. By looking at what happened in the previous year, you can identify patterns like seasonal changes in your business and plan accordingly. As an example, for businesses with inventory, cash flow forecasting helps prevent shortages during busy periods while avoiding excess stock during slower times.
A cash flow forecast is different from general financial forecasting. While financial forecasting gives you a bird’s-eye view of your business, a cash flow forecast gets into the details. It shows you exactly when money comes in and goes out, helping you spot the peaks and valleys in your cash flow throughout the year.
Don’t worry–creating a forecast isn’t as complicated as it might sound. Let’s break it down into simple steps.
Getting started: taking stock
The easiest way to create a cash flow forecast is with accounting software like QuickBooks or similar tools that can generate these reports automatically. If you work with a bookkeeper or accountant, ask them to guide you through the process and help you understand the numbers.
If you don’t yet use accounting software or want to increase your knowledge of where the numbers come from, you can review this process.
First, gather these key documents:
- Recent business bank statements (at least 3-4 months)
- A list of all your business bills and when they’re due
- Expected customer payment schedules
- Any major expenses planned for 2025
- Information about new contracts that will be starting next year
Take time to review both your incoming payments (accounts receivable) and outgoing expenses (accounts payable). Look for patterns in bill payment timing and customer payment habits. Are you taking advantage of early payment discounts from vendors? Are certain customers consistently paying late? Understanding these patterns helps create a more accurate forecast.
Creating your cash flow forecast: a practical approach
Start with a simple spreadsheet and using the documents and information you’ve gathered as a baseline, calculate your projected monthly revenue and expenses. Once you do that, you can then use the spreadsheet to identify:
- Your busy and slow seasons
- Regular payment cycles from customers
- Months when multiple bills come due
- Inventory patterns throughout the year
For retail or product-based businesses, you’ll also want to track inventory month-by-month as inventory management is crucial to cash flow. Tracking inventory levels throughout the year helps prevent tying up too much cash in stock during slow periods while ensuring you have enough product to sell during peak times.
Staying on track throughout the year
Make your forecast work for you by scheduling a 15-minute monthly review. Look at both your monthly performance and year-to-date numbers to understand short-term changes and longer-term trends. This regular check-in helps you spot potential issues early and adjust your plans accordingly.
Protecting your business’s financial health
Your cash flow forecast doesn’t just help with planning–it reveals where you need financial buffers to protect your business. Based on your forecast, you can build two essential safety nets.
The first is your emergency fund. Your forecast will show you exactly how much you spend each month on expenses and payroll, helping you set a realistic target–typically three months of costs. While recent events like COVID-19 showed why this matters, your forecast makes it practical: you can identify slower periods when you might be able to set aside extra cash. Start small and build gradually; even a modest emergency fund provides protection.
The second is your working capital strategy. Your forecast will show you the natural cycles of your business – when you need extra cash for inventory, when customer payments typically slow down, or when bills tend to bunch up. These insights help you determine the right amount of permanent working capital your business needs. A term loan from Grow America can provide this stable foundation for your business, giving you the flexibility to manage seasonal fluctuations and growth opportunities your forecast reveals. The best time to arrange this financing is when your forecast shows strong cash flow, as this demonstrates to lenders your business’s strength and ability to repay.
Take action today
Remember, your forecast doesn’t need to be perfect. The goal is to start building this helpful habit now, so you’re better prepared to achieve your business goals in 2025. As you use your forecast throughout the year, you’ll naturally get better at spotting trends and making adjustments.
Your future self will thank you for taking this important step toward better financial management. Starting now means you’ll begin 2025 with a clear picture of your business’s financial path and the confidence to make informed decisions throughout the year.