Revenue is not cash. Profit is not cash. You can have a profitable business and still run out of money. That is what makes cash flow forecasting the single most important financial exercise for a small business owner.

What a cash flow forecast actually is

A cash flow forecast is a week-by-week or month-by-month projection of:

  • Cash coming in: customer payments, deposits, refunds received, loan proceeds, owner contributions.
  • Cash going out: rent, payroll, supplier payments, loan repayments, tax instalments, equipment purchases.
  • The net difference: what is left (or what is short) at the end of each period.

That is it. No accrual accounting. No depreciation. No journal entries. Just money in, money out, and what is left.

How to build a simple 13-week forecast

Thirteen weeks (one quarter) is the standard short-term forecast:

  1. Start with your current bank balance. This is your opening cash position.
  2. List expected cash inflows for each of the next 13 weeks. Use what you know: confirmed invoices, recurring revenue, expected payments. Be conservative.
  3. List expected cash outflows for each week. Start with fixed ones (rent, loan payments, payroll) and then add variable costs (inventory, supplies, subcontractors). Include quarterly items like HST remittances and tax instalments.
  4. Calculate the net cash flow for each week (inflows minus outflows).
  5. Calculate the running balance: previous week’s ending balance plus this week’s net cash flow.

The running balance is the number that matters. When it goes negative, you have a problem to solve before that week arrives.

What to watch for

  • Seasonal dips: if your revenue drops in January but your expenses do not, the forecast shows you exactly when to start saving.
  • Large one-time expenses: a new vehicle, a deposit on a lease, an equipment repair.
  • Tax payments: CRA instalments, HST/GST remittances, payroll remittances, corporate tax.
  • Slow-paying customers: if your biggest client goes from 30-day terms to 60-day terms, your forecast shifts immediately.
  • Growth costs: hiring a new employee means payroll costs start immediately, but the revenue from their work may take months.

How often to update it

Update the forecast weekly. Every Monday, compare what actually happened last week to what you forecasted. Adjust the remaining weeks. This takes 15-20 minutes once you have the template built.

Tools you can use

You do not need expensive software. A simple spreadsheet works. Google Sheets or Excel with 13 columns (one per week), rows for each inflow and outflow category, and a running total at the bottom. If you use QuickBooks or Xero, both have built-in cash flow projection tools.

When to call for help

If your forecast shows a cash gap and you are not sure how to close it, that is the time to talk to your accountant. Options include adjusting payment terms, securing a line of credit before you need it, or restructuring expenses.

At L&R Accounting, we help small business owners build and maintain cash flow forecasts so they can make decisions with confidence, not anxiety. If you would like help setting one up, reach out.

Geetha Srinivasan, CPA (Ontario), CPA (US)
L&R Accounting Services Ltd.