Why use this calculator
Profit and cash are not the same thing, and the gap between them is what closes otherwise healthy businesses. You can invoice a record month, book the profit, and still be unable to pay wages because the money arrives sixty days later while rent, stock and payroll leave on schedule.
A forecast that ignores payment delay will always look better than reality, which is why this one separates revenue invoiced from cash collected and shows exactly how much is trapped in unpaid invoices. The most useful output is not the closing balance but the lowest point, because that is the moment you need an overdraft, a deposit from a customer or a delayed purchase.
Seeing it three months out gives you options. Discovering it on the day gives you none, and emergency finance is always the most expensive money you will ever borrow.
How to use it
- Enter the cleared balance across your business accounts today, less any money already earmarked for a tax bill you have not paid.
- Enter average sales invoiced a month over the last quarter, excluding any consumption tax you collect on behalf of the tax office because that money was never yours.
- Set monthly revenue growth as a compounding rate and keep it conservative, using a negative figure if the business is shrinking.
- For average days to get paid, divide debtors on your balance sheet by monthly sales and multiply by thirty rather than using your stated terms, because the two are rarely the same.
- Enter everything that leaves the account in a normal month as operating expenses, including wages, rent, stock, software, loan repayments and owner drawings.
- Set expense growth to reflect supplier increases and indexation.
- Finally add any single large payment such as a tax instalment or an equipment purchase and pick the month it falls in.
What each result means
- Cash at the end of month 12
- Your projected closing balance. Useful for planning, but never the number that decides whether you survive the year.
- Short of a three month reserve by
- How much more closing cash you would need at the end of month 12 to hold three months of expenses in reserve, the buffer this page uses. Close it with extra funding, faster collections or lower costs during the year.
- Above a three month reserve by
- How much closing cash you would have left over after setting aside three months of month-12 expenses as a reserve. This is money the forecast says could fund growth or repay debt.
- Net cash change over the year
- Whether the business generated or consumed cash across twelve months, independent of what you started with.
- Lowest cash balance
- The tightest point in the year, which is what determines the overdraft or buffer you actually need.
- Lowest point
- The month the squeeze lands, so you can arrange funding or delay spending well before it arrives.
- First month cash runs out
- The first month the balance goes below zero, which is your hard deadline for finding money or cutting costs.
- Months with negative cash flow
- How many of the twelve months take more cash out than they bring in, a measure of how lumpy the year is.
- Total cash collected
- Money actually banked over the year, which always lags invoiced revenue when customers pay on terms.
- Total revenue invoiced
- Total sales billed across the year. This is the figure that appears in your profit and loss, not in your bank.
- Cash tied up in unpaid invoices
- The working capital sitting in debtors. Cutting payment terms releases most of this as a one-off cash injection.
- Total payments out
- Every dollar leaving the account across the year, including operating costs and the one-off payment.
- Average monthly net cash flow
- The yearly change spread evenly across twelve months, a quick read on whether the business self-funds.
- Closing cash cover
- How many months of expenses your closing balance would cover if income stopped entirely. Three months is the usual target.
The formula
Revenue invoiced in month
N = base monthly revenue multiplied by (1 plus the monthly growth rate) raised to the power of N minus 1
Cash collected in month
N = the revenue invoiced in month N minus the payment lag
Expenses in month
N = base monthly expenses multiplied by (1 plus the expense growth rate) raised to the power of N minus 1
Net cash flow = cash collected minus expenses minus any one-off payment falling in that month
Closing cash = previous closing cash plus net cash flow
Closing cash cover = closing cash divided by the final month's expenses
Cash tied up in unpaid invoices = total revenue invoiced minus total cash collected
How this number is used in practice
The payment lag is the part owners consistently underestimate. Stated terms of thirty days routinely become forty-five or sixty in practice, and every month of delay parks a full month of sales in someone else's bank account. On $40,000 a month of sales that is $40,000 of your money funding your customers, and it is the reason a growing business can be profitable on paper and desperate in the bank at the same time.
Growth makes it worse rather than better, because every extra sale extends more credit before it returns any cash. The fastest fix is almost never a loan. Deposits on order, progress claims on longer jobs, invoicing the day work is finished rather than at month end, and calling overdue accounts in the first week all pull cash forward at no interest cost, and together they routinely release a month of revenue.
The second discipline is watching the lowest point rather than the closing balance. A forecast ending comfortably in the black can still pass through a month where the account is empty, and that month is usually when a tax instalment, an insurance renewal and a quiet trading period collide.
Model those one-off payments explicitly rather than pretending they average out. Most advisers suggest holding three months of operating expenses as a reserve, which is the closing cash cover figure in this calculation, and the practical way to build it is to move a fixed percentage of every deposit into a separate account the day it lands.
Keep the tax you collect on sales in that account too, because it was never revenue and spending it is the most common way a solvent business becomes an insolvent one.
Update the forecast every month with actual figures rather than treating it as an annual exercise. The first three months of any projection are reasonably reliable, months four to six are directional, and anything past that is a planning assumption rather than a prediction. Run at least three versions: the plan, a case where revenue falls fifteen per cent, and a case where your largest customer pays sixty days late or not at all.
If any of those scenarios breaches zero, arrange the facility while the bank still sees a healthy business, because credit is always cheapest when you least appear to need it.
Worked examples
A services business with $45,000 in the bank, $40,000 a month invoiced growing 3%, 45 day payment terms, $34,000 of costs growing 1% and a $25,000 tax instalment in month 4
Ends month 12 with $139,942, dipping to a low of $44,417 in month 4 with $16,534 tied up in unpaid invoices
A young business with $20,000 in the bank, $18,000 a month invoiced growing 5%, 60 day terms, $19,000 of costs growing 2% and no one-off payment
Six of the twelve months burn cash, the balance bottoms out at $11,197 in month 6 and the year ends with only $25,042, or 1.1 months of cover
The same young business after moving customers to payment on delivery
Closes the year with $51,679 instead of $25,042 and never dips below $18,520, purely from collecting faster
When people use it
- Checking whether the business can fund a hire, a fit-out or a stock purchase from its own cash
- Sizing an overdraft or working capital facility before you need it
- Showing a bank or investor a credible twelve month cash position
- Testing what tightening payment terms would release in working capital
- Planning around a large tax instalment or annual insurance renewal
- Stress testing a fifteen per cent drop in revenue or the loss of a major customer
Tips
- Forecast on cash collected, not on invoices raised. The gap between the two is where most businesses get caught.
- Take a deposit on every job over a week long, and invoice progress claims rather than waiting until completion.
- Move the tax you collect on sales into a separate account the day it arrives. It was never your money.
- Update the forecast monthly with actuals. A forecast you revisit is a management tool, one you file is decoration.
- Build three versions: the plan, revenue down fifteen per cent, and your largest customer paying sixty days late.
- Arrange an overdraft while the numbers look healthy. Facilities are cheapest and easiest to get when you do not need them.
- Chase invoices in the first week overdue, not the fourth. Collection rates fall sharply the longer a debt ages.
What it assumes, and where it stops being accurate
- Assumes smooth compounding growth in revenue and expenses. Real trading is seasonal and lumpy, so run separate forecasts for peak and quiet quarters.
- Assumes a single uniform payment delay for all customers, rounded to whole months and capped at three. A forecast with a few very slow payers will be optimistic.
- Assumes every invoice is eventually collected. Bad debts, credit notes and disputes are not modelled and typically cost a small percentage of sales.
- Assumes one one-off payment in the year. Tax instalments, insurance renewals and equipment purchases usually arrive several times, so run the forecast again for each.
- Excludes consumption taxes such as GST or VAT, which flow through the bank account and can create large quarterly swings if not set aside.
- Treats loan repayments and owner drawings as ordinary monthly expenses, so enter them there rather than leaving them out.
- Ignores interest earned on cash balances and interest charged on an overdraft, both of which are small over twelve months but not zero.
Terms used on this page
- Cash flow
- Money actually moving in and out of the bank account, which is different from profit recorded in the accounts.
- Debtor days
- The average number of days between issuing an invoice and being paid, calculated from debtors divided by sales.
- Working capital
- Cash tied up in debtors and stock less what you owe suppliers, the money needed to keep trading day to day.
- Cash runway
- How long the business can keep operating on its current balance if income stopped, measured in months of expenses.
- Overdraft facility
- A pre-arranged line of credit on a business account, used to bridge short predictable cash troughs.
Questions people ask
- Why does the forecast show less cash coming in than I invoice?
- Because customers pay on terms. If your average is forty-five days, roughly a month and a half of sales is always sitting in debtors rather than in your account. The calculator shifts collections by that delay, which is why total cash collected is lower than total revenue invoiced over the same twelve months.
- How accurate is a twelve month cash flow forecast?
- The first three months are usually close if your assumptions are honest, months four to six are directional, and beyond that the figures are planning assumptions rather than predictions. The value is not precision but early warning: it tells you roughly when a squeeze is coming, which is enough time to act.
- What should I do if the forecast goes negative?
- Work on the largest and fastest levers first. Pull cash forward with deposits and faster invoicing, push payments back by negotiating supplier terms, delay discretionary spending, and only then look at finance. Arrange any facility well before the month it is needed, because emergency borrowing is always the most expensive option.
- How much cash reserve should a small business hold?
- Three months of operating expenses is the common benchmark, and the closing cash cover figure measures exactly that. Businesses with lumpy revenue, long payment terms or a single dominant customer should aim higher. Build it by transferring a fixed percentage of every deposit into a separate account rather than hoping for a surplus.
- Should owner drawings and loan repayments be in the expenses figure?
- Yes. The forecast tracks cash, so anything that leaves the bank account belongs in monthly expenses, including loan principal, owner drawings, dividends and subscriptions. Leaving them out is the single most common reason a forecast looks comfortable while the account runs dry.
- How do I handle a seasonal business?
- The smooth growth model here will understate both the peak and the trough. Run the calculator separately for each quarter using that quarter's typical revenue and expenses, then chain the closing balances together, or model your worst quarter alone to size the reserve you need to carry through it.
Use this with
Cash Flow Forecast Calculator answers one part of the question. These pick up where it stops: Startup Burn Rate Calculator, Break-Even Calculator, Accounts Receivable Aging Calculator, Profit Margin Calculator and Business Loan Calculator.
Where these figures come from
This calculation is jurisdiction-neutral arithmetic. No country-specific rules are applied.
- business.gov.au. Australian guidance on cash flow management, payment times and business planning
- Australian Small Business and Family Enterprise Ombudsman. Payment times research and small business cash flow guidance
- US Small Business Administration. US guidance on cash flow statements, forecasting and working capital finance
- Reserve Bank of Australia. Small business finance conditions and access to credit
Cash Flow Forecast Calculator produces an estimate for general information. It is not financial, tax, medical, legal or engineering advice. read the full disclaimer. Spotted a wrong number? Report it and it gets fixed. The form picks up this calculator and the inputs you used.