Healthy profits do not always guarantee healthy cash. Every owner who has had to phone the bank manager at 4:30pm on a Friday knows the difference. According to the latest Business insights and impact on the UK economy bulletin, 22% of trading businesses saw their turnover fall in March 2025 compared with the previous month. Falling income is only part of the squeeze.
Inflation is proving stickier than hoped: the Office for Budget Responsibility now expects the Consumer Prices Index to average 3.2% in 2025, up on last autumn’s projection. Rising prices weaken customer buying power, delay debtor payments and inflate your own bills. Layer on the fact that HMRC’s late-payment interest rate rose again to 8.5% from 6 April 2025, and cashflow becomes as important as overall profitability.
Against that backdrop, cashflow forecasting is not just a finance exercise – it is operational risk control. A disciplined forecast shows you future pinch-points weeks ahead, buys you time to negotiate with suppliers or lenders and helps you decide, confidently, whether now is the right moment to invest or to hold back. This article sets out a practical method any small or medium-sized enterprise (SME) can follow to keep cash surprises to a minimum.
Why visibility over cash matters
A bank balance alone tells you where you are, not where you will be. Without forward insight you risk:
- missing payroll or VAT deadlines and triggering penalties
- taking on expensive debt when a short dip is spotted too late
- cutting growth projects due to lack of cash visibility
A rolling view of cash lets you time spending and funding decisions with much greater confidence.
Cashflow forecasting best practice for SMEs
- Start with your bank feeds: Pull the past 12 months of transactions to establish typical inflow and outflow patterns.
- Segment income: Split receipts by major customer or channel so you can model changes individually.
- Know your lag: Measure the real number of days between raising an invoice and getting paid. Late payment averages above 50 days for UK SMEs, so assume reality, not contract terms.
- Map fixed costs first: Rent, payroll, financing and tax dates rarely move. Build them in, then layer variable costs.
- Build weekly, review monthly: A weekly grid gives you granularity; a month-end review adds strategic context.
- Update quickly: Use accounting software with live bank feeds and dashboard forecasting so revisions take minutes, not hours.
For some of these, you will need a dedicated forecasting app, like Float, Futrli or Fluidly. Many tools plug straight into Xero, QuickBooks or Sage.
Tip: Set a “red-line” minimum cash balance – typically two month’s fixed costs – and create alerts if the forecast dips below it.
Tools that sharpen your forecast
We no longer talk about cloud accounting as something new – it is the norm. The innovations for 2025/26 lie in:
- Open banking feeds that post transactions in near real time
- AI-driven scenario builders that test multiple sales and cost assumptions in seconds
- smart reminders that chase invoices automatically the moment terms expire.
- Don’t forget the apps mentioned in the previous section that provide forecasting tools.
Stress-testing scenarios
If you want to take a step further, you can build various scenarios:
- Base case: Expected trading conditions.
- Downside: 10% revenue drop and slower debtor days.
- Upside: 15% growth and associated working-capital needs.
Turning insight into action
A forecast only delivers value when linked to decisions.
- Pricing: If margins are eroding faster than cash allows, move early.
- Capital investment: Schedule purchases for months with cash headroom.
- Dividends: Plan drawings after corporation tax and loan repayments, not before.
- Funding: Arrange or renew facilities before the red line is breached rather than in a panic.
Because forecasts are numbers everyone can understand, they also align teams – sales, operations and finance work from one source of truth.
Common pitfalls – and how to fix them
Even experienced teams trip over the same traps. Watch out for the following:
- Over-optimistic debtor assumptions: Basing expected receipts on contractual terms rather than historic reality. Pull aged-debtor reports and set forecast collection days to the 12-month average.
- One-off cash bumps hiding operational issues: Grants, asset sales or insurance refunds can mask an underlying shortfall. Track them in a separate line so operating cash remains visible.
- Forgetting HMRC payment dates: VAT, PAYE and corporation-tax liabilities can cluster in the same fortnight. Input each due date explicitly and build a running total so quarter ends do not shock you.
- Ignoring VAT on big purchases: You will be able to reclaim the input VAT on a big purchases, but that won’t be possible until the next VAT return is due, so you need to factor in the initial outlay for the VAT.
- Static models: A spreadsheet last touched three months ago is already wrong. Block out one hour at month end to refresh the forecast.
- No owner: If “everyone” owns the forecast, no one does. Assign responsibility to a named individual and make performance against the forecast part of their objectives.
Addressing these points converts a rough cash guess into a management-grade forecast you can rely on.
Come to us for cashflow queries
Used properly, cashflow forecasting moves you from reactive firefighting to proactive planning. The visibility it offers means you can time investment, negotiate credit terms and secure funding from a position of strength rather than urgency.
Our clients tell us the biggest win is peace of mind: once a disciplined forecast is in place, sleepless nights over payroll disappear and strategic decisions accelerate because the numbers speak for themselves.
If you would like expert support to embed dependable cashflow forecasting in your business, speak to us about our . We will keep your cash working as hard as you do – and give you the confidence to plan further ahead. Contact us to explore how our team can support your wider growth plans.
We are chartered accountants and offer a range of financial outsourcing services and virtual CFO services. For a free no obligation consultation email info@teamsas.co.uk or call 0118 911 3777.
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