Cash flow is the money actually moving in and out of your bank account, and it is not the same as profit. Profit is what is left once you count everything you have earned and everything you owe. Cash is what is sitting there on the fifteenth when the van insurance goes out. A business can be profitable on paper and still be unable to pay a bill, and that gap is what a cash flow forecast shows you.
At a glance
| Feature | Detail |
|---|---|
| What it is | Money in and money out of the bank, month by month, with a running balance |
| Why it matters | Profitable businesses still run out of money. Cash is the thing that runs out |
| The usual cause | Customers pay you in 30 days while your suppliers want paying in 7 |
| Biggest single fix | Invoice the day the job finishes, and set payment terms before you start |
| How to build one | Three rows in a spreadsheet: money in, money out, running balance |
Profit and cash are not the same thing
Profit counts money when it is earned. You finish a job on Tuesday and send an invoice, and that job counts as sales in Tuesday's month, whether the customer pays in a week or a quarter. Cash counts money when it arrives: nothing exists until it lands in the account.
The trouble starts when there is a delay between doing the work and being paid for it, and there almost always is.
How a profitable business runs out of money
Take Jamie, a one-man 24/7 plumbing business in Reading. He charges £70 an hour and bills around 25 chargeable hours a week, which is roughly £7,000 a month of sales. His running costs — fuel, van insurance, servicing, tyres, road tax, breakdown cover, public liability, phone, software and the accountant — come to about £855 a month, and he takes £3,000 to live on. That is a business that works. Now watch the timing.
Most of his domestic customers pay on the day, by card, on the doorstep. But in March he takes on maintenance work for a letting agent: steady, repeat work, paid on 30-day terms. He does £4,000 of their work in March and buys £1,500 of materials on his merchant account, which wants paying within 7 days.
So on 7 April, £1,500 leaves his account for materials on work he has already finished. He invoiced the agent on 31 March, so the earliest he sees that £4,000 is 30 April. Meanwhile April's fuel, insurance and his own £3,000 go out as normal.
March was one of his best months. April is the month he cannot pay himself. Nothing went wrong — he did the work, he made money on it, and the timing still left him short.
Getting paid sooner
Almost everything that fixes cash flow happens before the work starts or on the day it finishes.
Invoice the same day. The commonest reason small businesses are paid late is that they invoiced late. An invoice written while the job is fresh gets paid a week sooner than one written at the end of the month.
Set the payment terms in writing, before you start. "Payment on completion" for domestic work. Seven or fourteen days for a business customer if you can get it — terms are negotiable, and people who never ask end up on thirty. Put them on the quote, not just the invoice.
Take a deposit. On any job with real materials in it, ask for the materials up front. Most customers find this normal, and you are never funding someone else's bathroom.
Bill in stages. If a job runs longer than a week, invoice weekly rather than at the end. On a three-week job that is two invoices you would otherwise have been carrying.
Make paying easy. A card reader on the doorstep, a payment link in the invoice, bank details on every document. Every extra step adds days.
Chasing late payers
Have a routine and follow it the same way every time, so it never feels personal.
Day after the due date: a short, friendly email. Most late payments are an invoice sitting in someone's inbox, nothing more. Day seven: a phone call, because email is easy to ignore and a call gets a date. Day fourteen: a statement of what is owed, in writing, with a deadline. Beyond that, stop taking new work from that customer until the old invoice is settled.
For business customers there is a statutory right to claim interest and recovery costs on late commercial payments. Mentioning it politely often works better than using it.
Be selective about who gets terms at all. A customer who wants sixty days on jobs that need materials up front is asking you to lend them money for two months. It may still be worth it — just make it a decision rather than an accident.
Seasonality, tax and the buffer
Most businesses have a shape to the year. Jamie's phone rings hardest in a cold snap and goes quiet in August when half of Reading is away. Averaging twelve months into one flat number hides exactly the months that will hurt, so put the shape into your numbers. If August is a two-thirds month, write it as one and see what it does to the balance.
Then two things get kept back. Tax. Nobody deducts it for you when you are self-employed, so move a share of every payment into a separate account the day it lands. If you are VAT registered, the VAT in your account was never yours either. And a buffer. Keep enough of a cash buffer for tax and slow months — a few months of running costs and your own drawings turns a bad month into an annoyance instead of a crisis.
How to build a simple cash flow forecast
You need a spreadsheet and about an hour. Twelve columns, one per month, and three blocks of rows.
Money in. Every payment you expect to actually receive, in the month it lands in the account — not the month you did the work. If you invoice in March on 30-day terms, that money goes in April. Include a loan you draw down, money you put in yourself, a grant.
Money out. Everything leaving the account, in the month it leaves. Materials and stock, fuel and the rest of the vehicle, insurance, software, phone, accountant, rent, marketing, loan repayments and what you take for yourself. And the tax and VAT bills on the dates they are actually due, which is what catches most people out.
The running balance. Three lines: what you started the month with, plus money in, minus money out, equals what you end the month with. That closing figure becomes the next month's opening figure, carried across all twelve columns.
That is the whole thing. There is no clever part.
Now read the bottom row and find the lowest number. That month is the one to plan for, and how far below zero it goes is how much money you need behind you. Seeing it now, six months ahead, is a very different position from finding out on the day.
The numbers that go into the top of that spreadsheet are the ones from your business plan: what you sell, what each sale costs you, and what the bills are. Plan works out those numbers with you and exports the whole plan to Excel or CSV, so you or your accountant can build the cash flow forecast from there. Create a mini business plan in minutes with Plan.business. Put in your rate, your hours and your costs, and it works out the rest — what you will make, when you break even, and what you need to charge to hit your target.
Figures correct as of September 2026. Tax thresholds, fees and rates change; check the linked GOV.UK pages before acting. Prices and costs shown are indicative and vary by area and by what's included.
What is Plan?
Plan is a free business operating system for people starting or newly running a UK business. It walks you, one simple step at a time, from your elevator pitch through brand, product and pricing, to a complete business plan — then uses everything it now knows about the business to help with the basics: logo and brand, marketing, a website, a bank account, funding, insurance, company registration. You can use as much or as little as you want.
To be straight about it: Plan stops short of the cash flow forecast itself. What it gives you is the underlying arithmetic — sales, costs and the month-by-month profit plan — and an export to Excel or CSV. The three rows above are then quick to add yourself, or to hand to an accountant.
Frequently asked questions
What is a cash flow forecast? A month-by-month view of money actually entering and leaving your bank account, with a running balance carried from one month to the next. It counts money when it moves rather than when it is earned, so it shows the months where you might be short.
Why is my business profitable but has no money? Almost always timing. You have earned the money but not received it: customers on 30-day terms, suppliers wanting paying in 7, stock bought before it sells, or a tax bill covering last year's profit. The profit is real, it just has not arrived.
How much cash should a small business keep in reserve? Enough to cover the tax you owe plus a few months of running costs and your own drawings. The number comes from your own cash flow: find the lowest point on the running balance and keep at least that much behind you.
How do I stop customers paying late? Set the terms in writing before you start, invoice the same day the job finishes, take a deposit on jobs with materials, bill long jobs in stages, and make paying easy with a card reader or payment link. Then chase to a fixed routine.
How do I make a cash flow forecast in Excel? Twelve columns, one per month. A block of rows for money in, a block for money out, and three lines at the bottom: opening balance, plus in, minus out, equals closing balance. Carry each closing balance into the next month as its opening figure.
Two ways to do this
Build it yourself. The spreadsheet described on this page is a genuine cash flow forecast and it takes about an hour. The hard part is not the sums, it is being honest about when customers really pay.
Or start with the numbers. Start free in Plan. It runs in your browser — nothing to download. Answer short questions about what you sell, what it costs and what your bills are, and Plan does the arithmetic and exports the whole plan as a spreadsheet — exactly what you or your accountant need to add the cash flow rows on top.