Running a business without cashflow forecasting is like driving blindfolded. You might make it a few metres, but you’re probably going to hit something expensive along the way. Whether you’re a tradie in Perth juggling multiple projects or a creative freelancer managing irregular income, understanding your future cash position isn’t just helpful, it’s absolutely essential for survival.
Cashflow forecasting gives you the power to see around financial corners. Instead of wondering whether you’ll have enough money to cover next month’s expenses, you’ll know exactly where you stand and can plan accordingly.
What Exactly Is Cashflow Forecasting?
Let’s cut through the jargon. Cashflow forecasting is simply the process of estimating your future cash inflows and cash outflows over a specific period. Think of it as your financial weather forecast, helping you prepare for sunny days and potential storms ahead.
Your cashflow forecast shows you when money comes into your business (from sales, invoice payments, tax refunds) and when it leaves (operating expenses, loan payments, equipment purchases, rent). The difference between these two gives you your cash position at any point in time.
We work with businesses across Perth and wider Australia, and honestly, the number of smart business owners who don’t prioritise this step is staggering. They’re brilliant at what they do, but flying blind when it comes to managing their business cash.
The Real Value of Cashflow Planning
Cashflow planning takes your forecast and turns it into actionable strategies. It’s not enough to know that you might have a cash shortage in three months; you need a plan to address it.
Good cashflow planning helps you:
- Spot potential cash shortages before they become emergencies
- Time your major purchases when you have surplus funds
- Negotiate better payment terms with suppliers and clients
- Make strategic decisions about growth, hiring, or investments
- Sleep better at night knowing you’re prepared
For Perth businesses, this is particularly important. Our local economy can be unpredictable, with seasonal fluctuations affecting everything from tourism to construction. Having a solid cashflow plan means you’re ready for whatever comes next.
Creating Your Cashflow Budget: The Foundation
A cashflow budget is your detailed roadmap. It’s more comprehensive than a simple forecast because it includes all your planned income and expenses for a specific period, usually monthly or quarterly.
Your cash flow budget should include:
- Opening bank balance from the previous period
- All incoming payments (sales, receivables, loans, investments)
- All outgoing cash (expenses, loan payments, tax obligations, bank fees)
- Closing balance for the period
The beauty of a well-constructed cashflow budget is that it becomes your benchmark. You can compare your actual cashflows against your estimates and adjust your future forecasts accordingly. This continuous refinement makes your predictions increasingly accurate over time.
Business Cashflow Tools That Actually Work
Let’s talk about the practical side. We use Xero accounting software with our clients, and for good reason. Xero integrates beautifully with specialist cashflow forecasting apps that take the heavy lifting out of this process.
Fluidly gives you real-time cashflow insights and automated forecasting. Futrli offers scenario planning capabilities that let you test different strategies before implementing them. Fathom provides detailed financial analysis and reporting that makes complex cashflow data easy to understand.
These tools connect directly to your Xero data, so your cashflow statements update automatically as transactions flow through your accounting system. No more manual spreadsheets or outdated information.
Why Different Industries Need Different Approaches
Every business has unique cashflow patterns. Construction companies in Perth might have large upfront material costs with delayed payments from clients. Medical practices have steady patient income but seasonal variations in certain services. Creative businesses often deal with project-based income that can be feast or famine.
Understanding your industry’s typical cashflow cycle helps you create more accurate forecasts. For example, if you’re in hospitality, you know December will likely be strong while January might be slower. Building these patterns into your forecast prevents nasty surprises.
At Advanced Bookkeeping and BAS, our team has helped businesses across industries improve their cashflow management through our bookkeeping services, and the results speak for themselves. Better forecasting leads to smarter decisions, reduced stress, and stronger financial foundations.
Managing Positive and Negative Cashflow
Here’s something many business owners don’t realise: even profitable businesses can have negative cashflow periods. You might have enough income on paper, but if payments come in after expenses go out, you could face cash shortages.
Positive cashflow periods are equally important to manage well. Just because money’s flowing doesn’t mean you should spend it all. Smart businesses use surplus periods to build reserves, invest in growth, or pay down debt.
Your cashflow forecast helps you identify both situations in advance. When you see a negative period approaching, you can arrange funding, delay non-essential expenses, or push for faster customer payments. When positive periods are coming, you can plan strategic investments or reward yourself and your team.
Strategic Decision Making With Future Cashflows
Cashflow forecasting transforms how you make business decisions. Instead of gut feelings, you base choices on data about your future cash position.
Thinking about hiring? Your forecast shows whether you can sustain the additional payroll costs. Considering new equipment? You’ll know the best time to make the purchase without straining your cash balance. Evaluating a new market opportunity? Your forecast helps determine if you have the financial capacity to pursue it.
The key is running different scenarios. What if sales increase by 20%? What if a major client delays payment? What if interest rates change? Modern forecasting tools let you model these scenarios quickly, giving you confidence in your strategic planning.
Getting Started: Your First Steps
Don’t overcomplicate this. Start with a simple three-month forecast covering your expected cash coming in and money going out. Use your historical data as a baseline, then adjust for any known changes.
Focus on accuracy over perfection. It’s better to have a rough forecast that you update regularly than a detailed model you never use. As you get comfortable with the process, you can add more sophistication and extend your forecasting period.
Remember, forecasting is about trends and patterns, not exact amounts. If your forecast shows potential issues, you have time to address them. If it shows opportunities, you can prepare to seize them.
The most successful businesses we work with treat cashflow forecasting as an ongoing process, not a one-time exercise. They review and update their forecasts regularly, typically monthly, and use the insights to guide their decision-making.
Your business deserves this level of financial clarity. Whether you’re managing everything yourself or working with a bookkeeping professional, cashflow forecasting should be part of your regular financial routine.
Questions Meet Answers
What is cashflow forecasting?
Cashflow forecasting is the process of estimating your business’s future cash inflows and outflows over a specific period. It helps you predict your cash position, identify potential shortfalls, and plan for financial needs. Think of it as your financial roadmap that shows when money will come in and go out of your business.
What does a cashflow budget look like?
A cashflow budget is a detailed document showing your opening bank balance, all expected incoming payments (sales, receivables, loans), all planned outgoing payments (expenses, loan repayments, tax), and your closing balance for each period. It typically covers monthly or quarterly periods and helps you track actual performance against your projections.
How do you calculate a cashflow budget?
Start with your opening balance, add all expected cash inflows (sales revenue, outstanding invoices, loans, tax refunds), then subtract all expected cash outflows (operating expenses, loan payments, tax obligations, equipment purchases). The result is your projected closing balance. Most businesses find it easier to use accounting software like Xero with integrated forecasting tools rather than manual calculations.
