A one-page cash flow forecast for sole traders: a method you can do in an hour

What a forecast is, and is not

A forecast is a calendar of expected cash in and cash out, with a running balance. It is about when money moves, not when you earned or incurred it. That is the difference from a profit and loss report, which can look fine while your account is empty.

It is a forecast, not a promise, so it will be wrong in the details. Its value is in showing the shape: the weeks where the balance gets tight.

Set it up in four columns

Use a spreadsheet or a sheet of paper with one row per week for 13 weeks and four columns: opening balance, money in, money out, closing balance. Each week’s opening balance is last week’s closing balance. Start with the real balance of the account you use for the business today.

If you have two accounts, such as a day-to-day account and a tax account, forecast the day-to-day one and treat transfers to tax as money out.

Fill in money in

List each invoice you have sent, with the date you realistically expect it to be paid. Use the client’s actual pattern, not the due date. If a client always pays 10 days late, forecast it 10 days late. Then add work you expect to invoice and be paid within the 13 weeks, marked as less certain. Include other income such as grants or refunds only when they are confirmed.

GST complicates this, because the money in includes GST you will later pass on. Many sole traders forecast the full amount in and then show the GST as part of the BAS payment. See GST on invoices.

Fill in money out

Add the regular costs first: rent or studio fees, insurance, phone, software subscriptions, loan repayments, fuel and your own drawings. Then the lumpy items: equipment you plan to buy, registrations, and stock orders. Use your last three months of statements to catch costs you forgot.

Then the tax items, which cause the most trouble. Add the BAS payment on its due date, the PAYG instalment if you are on them, any super contribution you plan to make, and a regular transfer to your tax set-aside. See BAS due dates and setting aside money for tax.

Read the result

Look at the lowest closing balance in the 13 weeks and the week it happens. If it falls below zero, or below the minimum you are comfortable with, you have time to act. Options include invoicing earlier or in stages, asking for a deposit, following up late invoices sooner, delaying a purchase, or arranging a payment plan before the due date rather than after. See chasing late invoices and deposits and progress payments.

If you cannot pay a tax bill, contact the ATO before the due date. See cannot pay your tax bill.

Keep it alive

Once a week, replace the forecast with what actually happened for the week just ended, then add a new week at the end so you always look 13 weeks ahead. Spend the time on the big items only. If a number is within a few percent, leave it. Once a quarter, compare the forecast with the result and adjust the habits you got wrong, such as optimistic payment dates.

Stress test it

Ask two questions of the spreadsheet. What happens if my biggest client pays a month late? What happens if a quarter of my expected work does not arrive? Change the numbers and watch the lowest balance. If either scenario takes you below zero, you know what buffer to build. A common target is enough cash to cover a few weeks of fixed costs plus the next BAS.

How FlowFi helps

FlowFi’s cash-flow forecast uses your imported transactions to project the coming weeks, and the Tax Pot shows what to hold back for tax. Your own knowledge of late payers and planned purchases will always sharpen it, so check the forecast against the invoices you know about.