There is no shortage of cash flow forecast templates. Start Up Loans has one, so does the British Business Bank, so do Xero and Sage, and there is a spreadsheet on GOV.UK that has been downloaded more times than anyone can count. They are all perfectly good, and between them they answer the question “how do I build one”.
None of them answer the question that actually decides your application, which is what happens when somebody else reads it.
I assess these for a living. What follows is what I look at, roughly in the order I look at it, and what tends to be wrong.
1. The lowest point, not the last line
The first thing worth finding in any forecast is not the closing balance in month twelve. It is the smallest number in the closing balance row, wherever it falls.
That number is the whole question. A forecast can finish the year at £40,000 and still be unfundable, because it dipped to minus £6,000 in March and nobody said how that gap was going to be covered. Annual figures hide this completely, which is why a monthly forecast is asked for and an annual one is not.
Illustrative, not a real business. The year closes at £40,000, which looks comfortable. The business still runs out of money in March, and the annual figure never shows it — only the monthly closing balance does.
If your lowest point is negative, you have three honest options: ask for more funding, ask for it earlier, or change something in the business so the trough is shallower. What does not work is presenting the annual total and hoping the month-by-month detail goes unread. It is the first thing that gets read.
2. Where the revenue line comes from
The second thing is the sales row, and the question is always the same: why that number.
A forecast is arithmetic sitting on top of a small number of assumptions. Everything downstream is just multiplication. So the assumptions are what get examined, and there are only ever a handful that matter — how many customers, at what price, at what frequency, growing how fast.
What makes an assumption assessable is a source. Compare these two:
Month 4: £8,000
Month 4: £8,000 — 40 covers a day at £14 average spend, five days a week. The previous operator at this address averaged 47 covers; I have assumed 15% below that for the first year.
The number is identical. The second one can be discussed; the first one can only be believed or doubted, and an assessor who cannot check a figure will discount it. Once one figure is discounted, every other figure in the document starts looking like it might be invented too.
3. Whether the timing is real
This is the one that catches out people who have run a profitable business before, and it is worth labouring.
Profit and cash are not the same thing, and a forecast is about cash. If you invoice on 30-day terms and your customers habitually pay at 45, the money lands in a different month from the sale. If you are VAT registered, the quarter falls due whether or not it is convenient. If you are paying staff monthly and being paid quarterly, there is a gap and it has to be funded.
Common timing errors, all of which are visible in about ninety seconds to someone who looks for them:
- Sales appearing in the month they were made rather than the month they were paid
- No VAT quarters at all, or all four in the wrong months
- Corporation Tax missing entirely, because it is payable nine months after the year end and the forecast stops at twelve
- Stock or equipment paid for in the month it arrives, when the supplier’s terms say otherwise
- Owner’s drawings left out, which quietly makes the business look more solvent than the household behind it can afford
None of these are difficult. They are just tedious, and a template will not do any of them for you — it will accept whatever you type and total it up neatly.
4. What happens when it goes wrong
The forecast you submit is your best case, whether or not you describe it that way. Assessors know this, so the useful thing is to answer the question before it is asked.
Take the two or three assumptions the business is most exposed to — usually sales volume, price, and how quickly customers pay — and show what happens when each moves against you. Sales 20% lower. Payment 30 days slower. Both at once.
| Scenario | Lowest point | Month | Still fundable? |
|---|---|---|---|
| As planned | −£6,000 | March | Yes, with the facility asked for |
| Sales 20% lower | −£19,000 | April | Only with a larger facility |
| Customers pay 30 days later | −£14,000 | April | Borderline |
| Both together | −£31,000 | May | No — the plan needs changing, not funding |
If the business still works, you have just removed the main reason to say no. If it does not, you have found out something important while you can still do something about it, which is considerably better than finding out in a rejection letter. Either outcome is worth the hour it takes.
A sensitivity table like this is the single most effective addition to a funding application and the one most often left out.
When the forecast says no
Sometimes you build the thing honestly and it tells you the business does not work as planned. That is not a failed forecast. That is the forecast doing its job, and it is much cheaper to hear it now.
The usual fixes, in rough order of how often they work:
- Change the payment terms, not the price. Getting paid in 14 days rather than 45 can transform a cash position without touching a single sales assumption.
- Move the big purchases. Equipment bought in month one and equipment leased over three years are the same asset and completely different cash flows.
- Fund the trough properly. If the gap is real and temporary, an overdraft or a slightly larger facility is the correct answer, and asking for it with the forecast that proves you need it is a far stronger application than asking for too little and coming back.
- Change the model. Sometimes the answer is a deposit up front, or a retainer instead of project work. This is the hard one, and it is also the one that most often saves the business.
What a template cannot do
All of this is arithmetic, and none of it is beyond anyone with a spreadsheet and a weekend. But a blank template will not tell you your lowest point is in March, it will not put the VAT quarters in the right months, and it will not mention that the business does not break even until month nineteen. It takes your figures and adds them up.
That is what SquarePlan’s software does differently: you answer questions about the business, and it builds the monthly cash flow, works out VAT, Corporation Tax and National Insurance as it goes, and shows you where the plan is fragile before a lender does. £39.99 a month, and you can see the demo before you sign up for anything.
If you would rather not build it at all, we write plans and projections from £499, and working through exactly these four things with you is most of the job.