Cash Flow Forecast: How to Build One, and Why Growth Burns Cash

October 14, 2026 · Selling products and running the numbers

A cash flow forecast lists, month by month, the cash you expect to collect and the cash you expect to pay out, and carries the running bank balance forward. It is not a profit forecast. Profit counts a sale when you invoice it; a cash flow forecast counts it when the customer pays. That gap is why a profitable, growing business can run out of money: in the illustrative example below, a company growing 20% a month books $118,742 of profit in a year and still has a negative bank balance by month 10.

How to do a cash flow forecast

1. Start from the bank balance, not from the profit and loss statement.
2. Forecast what you will invoice each month.
3. Turn invoices into collections using how your customers actually pay. Pull this from your accounts receivable aging report: what share pays in the first month, the second, the third, and what share never pays.
4. List cash going out in the month it leaves: payroll, suppliers, rent, loan payments, taxes.
5. Closing cash = opening cash + collected - paid out. That closing figure is next month’s opening figure.

The only step that takes thought is step 3. The formula for one month’s collections is:

Collected this month = (share paid in month 0 x this month’s invoices) + (share paid in month 1 x last month’s invoices) + (share paid in month 2 x invoices from two months ago)

Worked example: a profitable business, month by month

The inputs, all illustrative: $30,000 in the bank, $50,000 invoiced in month 1, invoicing growing 20% a month, and costs (labor, materials, subcontractors) of 90% of invoicing, paid in the month the work is done. Customers pay 55% of each invoice in the month it is raised, 30% the month after, 11% the month after that, and 4% never pay. The two months before the forecast were invoiced at $34,722 and $41,667, so there are already invoices in the pipeline on day one.

Profit here is invoicing minus costs minus the 4% written off, a 6% margin.

Every single month shows a profit. Every single month loses cash. In month 1, $50,000 is invoiced and $45,000 is paid out, but only $43,819 arrives. $16,319 of that (37%) is payment for the previous two months’ invoices, which were smaller. The month makes $3,000 of profit and costs $1,181 of cash.

By month 12 the business invoices $371,504 a month and burns $8,772 of cash doing it. Over the year it earns $118,742 and its cash falls by $46,727, bottoming out at -$16,727. That is the month a bank declines a payment, payroll is late, or the owner covers it from savings.

Why growth itself consumes cash

Here is the same business at five growth rates:

Faster growth raises profit in every row and lowers cash in every row. At 0% growth, profit and cash change are the same $36,000: with no growth, the invoices being collected this month are the same size as the ones being raised, so cash tracks profit exactly. Growth breaks that. At 20% growth, profit is 3.3 times the no-growth case and cash goes negative.

The mechanism is the size of old invoices. Costs are paid on this month’s work, at this month’s size. Collections come partly from invoices raised one and two months ago, when the business was smaller. With no growth, the business collects 96.0% of a month’s invoicing (everything but the write-offs) against costs of 90%: a cash margin of 6.0%. At 20% monthly growth, the older invoices are smaller, collections fall to 87.6% of this month’s invoicing, and the cash margin is -2.4%. Negative. Every extra dollar of work now costs cash to deliver.

So there is a threshold. For this business it is 13.4% monthly growth. Below it, growth still adds cash, just more slowly (10% growth leaves a 1.4% cash margin and $14,580 more cash at year end). Above it, growth drains cash, and faster growth drains it faster: at 15% the bank balance has already fallen by $8,635 over the year, even though it never goes below zero.

For a given payment pattern, the threshold moves sharply with the cost ratio:

At 70% costs, no growth rate up to 50% a month burns cash (the calculation stops there, beyond which the question stops being realistic). At 95% costs, growth above 2.0% a month does. The thinner the margin, the less growth it takes, which is why a thin-margin business that wins a large new contract needs a cash flow forecast before it signs.

Why a runway calculation misses it

A runway calculation divides cash by monthly burn. Run it on this business at the end of month 3: $25,703 in the bank, $1,700 burned that month, so 15 months of runway. The balance actually goes negative 7 months later, in month 10. Cash over burn assumes the burn stays flat. Here the burn grows with the business, so the runway shrinks faster than the clock runs.

Cash flow forecast template in Excel

You can build this without a template. Put the inputs in column R:

Then the rows, with columns B and C holding the two months before the forecast and D through O holding months 1 to 12:

With the example inputs, B2 is $34,722, C2 is $41,667, D3 should read $43,819 and D6 should read the month 1 closing cash in the table above. Add =MIN(D6:O6) to see the low point, and change R1 to watch it move. The same formulas work in Google Sheets and LibreOffice. In a real forecast, replace the growth formula in row 2 with your own monthly figures, and split row 4 into lines for payroll, suppliers, rent and taxes on the dates they are actually paid.

How these were calculated

Invoicing grows by a fixed percentage each month, including the two months before the forecast. Collections follow the stated pattern; the written-off share is never collected and is counted as a cost in profit. Costs are paid in the month the work is invoiced, with no fixed overhead, tax or financing. The growth threshold is the monthly rate at which steady-state collections, as a share of current invoicing, fall to the cost ratio. Every figure was computed twice: once by the code behind the products below and once by an independent program that sums collections directly and solves for the threshold with the quadratic formula instead of a numerical search. They agree to the cent. The business, rates and payment pattern are illustrative, not typical or recommended values, and none of this is financial, tax or accounting advice.

If you want to run this on your own invoicing, costs and aging report, the first product below builds the forecast and computes your own growth threshold; the second covers runway, burn and unit economics once you know what the forecast says.