Cash flow budget: build a useful forecast for your business

You expect the year to be profitable, but will you be able to pay salaries at the end of the month? A cash flow budget answers that question by placing receipts and payments on their expected dates.

What goes into a cash flow budget?

Start with the cash available at the beginning of the period. Add expected inflows: customer payments, deposits, capital contributions and confirmed financing. Subtract payments for suppliers, salaries, social contributions, VAT, taxes, investments and debt repayments.

Proposed financing must not be treated as secured. An available credit facility must also be distinguished from the bank balance: it is not a cash receipt until drawn.

An operating budget forecasts income and expenses. A cash flow budget forecasts payments. They must be consistent, but their line items are not identical.

Translate sales into expected receipt dates

To move from the sales budget to the cash flow budget, ask when each sale is likely to be paid. A service delivered in January with thirty-day payment terms does not necessarily put money in the bank in January. Actual payment delays can also differ from written terms.

Separate invoices already issued from forecast sales. For issued invoices, use due dates and customer follow-up information. For future sales, state an explicit payment-timing assumption. A likely order should not have the same degree of certainty as a confirmed payment.

Do the same for outflows. A purchase may be paid before delivery, on receipt or later, depending on the agreement. Forecast expected payments instead of copying income statement expenses into the same months.

A three-month example

Fictional amounts in CHF. Customer receipts and supplier payments include VAT where charged; net VAT settlements are tracked separately. Salaries and social contributions include all relevant payments here, without double counting.

One month’s closing balance becomes the next month’s opening balance. The VAT payments are hypothetical due dates for this example, not a timetable imposed on all businesses. Add tax instalments, interest, capital contributions and other movements where applicable.

A positive month-end balance can hide a temporary overdraft

February starts with CHF 15,000. The budget forecasts CHF 32,000 in receipts and CHF 40,000 in payments, leaving CHF 7,000. But suppose CHF 24,000 of rent, salaries and other commitments falls due before customers pay. The bank balance then reaches CHF 15,000 − 24,000 = −9,000. The CHF 32,000 arrives afterwards, followed by the remaining CHF 16,000 of payments, and the month indeed ends at CHF 7,000. You still need a solution for the CHF 9,000 shortfall. A weekly view is useful for the tightest months.

Build the forecast in five steps

1. Choose the horizon

A twelve-month monthly forecast shows seasonality. Weekly monitoring, for example over thirteen weeks, is more precise when cash is tight. These are management tools, not legally prescribed horizons.

2. Start with verified data

Gather bank balances, outstanding invoices, orders, contracts, tax payment schedules and financing commitments. Tracking customer receipts supplies some of the essential data.

3. Put cash flows in the right period

A January sale paid in March belongs in March’s receipts. A supplier deposit paid in December belongs in December, even if the goods arrive later.

Use the amounts actually paid or received, including VAT where it forms part of the transaction. Then forecast VAT settlements or refunds separately. Avoid counting the tax twice.

4. Include less frequent expenses

Remember annual insurance, thirteenth-month salaries, tax instalments and final balances, equipment replacement, loan instalments and approved distributions. Depreciation is not a cash outflow, unlike paying for the investment.

5. Test the assumptions

Prepare a central scenario and a cautious one: lower sales, slower customers or a more expensive investment. Document assumptions instead of changing figures merely to produce a positive balance.

What if a shortfall appears?

Start by understanding the cause. You might invoice sooner, agree customer deposits, negotiate a supplier due date or postpone a non-urgent investment. If the need is structural, a payment reminder alone will not be enough.

Working capital requirements help explain resources tied up in operations. The choice of financing then depends on the need’s duration and nature.

A surplus also deserves thought: how much will be needed for upcoming commitments? What amount can safely remain available? Do not invest funds essential in the short term in a product incompatible with that horizon.

Test a delayed payment without rebuilding the whole forecast

In the budget above, March ends with CHF 14,000. If a CHF 12,000 receipt expected in March arrives in April instead, March’s closing balance falls to CHF 2,000, with all other assumptions unchanged.

The amount has not disappeared: move it to April if receipt is still reasonably expected. This is the difference between delay and loss. An uncollectible customer debt requires a different scenario because the inflow will not merely be postponed.

Next examine the lowest point within the month. Even a CHF 2,000 closing balance may hide an overdraft before the final invoices are paid. Use more detailed dates for sensitive weeks.

Keep a column or note explaining major differences between forecast and actual figures. After a few months, you will see whether you consistently underestimate customer payment delays, purchases or annual expenses. A forecast becomes more reliable through better assumptions, not simply more rows.

Assess available liquidity without counting credit twice

Suppose the bank account holds CHF 7,000 and a credit facility allows an unused CHF 20,000 overdraft. Available liquidity can reach CHF 27,000 if the bank’s conditions actually permit that drawdown. The CHF 20,000 is neither income nor permanent capital: using it creates debt and may incur interest.

If the forecast bank balance is −CHF 9,000, the facility covers CHF 9,000 of the shortfall and leaves CHF 11,000 of theoretical capacity. Do not also add CHF 20,000 as a receipt while leaving the full overdraft available, because that counts the same financing twice.

Use a consistent presentation: either a bank balance that can become negative within the authorised limit, or explicit drawdowns and repayments. In both cases, show the conditions, availability date and unused amount.

Turn a negative figure into a dated decision

For every expected shortfall, record the amount to cover, the latest date for action and a solution that is either confirmed or still to be secured. A financing promise, a deposit yet to be negotiated and an agreed supplier extension do not offer the same certainty.

Retain a scenario without the uncertain solution. Management can then see what happens if it fails and prepare an alternative before payment day.

Keep the forecast up to date

Replace each completed period with actual figures and explain differences. A delayed receipt is not necessarily lost; an omitted expense reveals a preparation problem.

Add a new period as time passes and assign clear responsibility for updating the forecast. It should support cash management decisions, not merely reassure a lender during a loan application.

Use this forecast as the basis for your regular cash flow management routine, then update expected receipts with a customer payment tracking table.

Forecast early enough to choose a solution

A forecast is useful when it reveals a shortfall before the due date and leaves time to compare possible responses. Its value comes from realistic dates and regular updates.

Our accounting support can help improve the reliability of the balances and invoices feeding your budget. This connects your accounts with a practical view of upcoming payments.

Sources and references

• GENILEM: working capital requirements (in French)
• SECO: budget planning (in French)