Cash Flow Forecast Calculator

Why Cash Flow Forecasting Matters

A cash flow forecast is one of the most important financial tools for any business. It projects how much money will flow in and out of your business over a specific period, helping you anticipate shortfalls before they become emergencies. According to the BDC, poor cash flow management is one of the top reasons small businesses fail in Canada.

Cash Flow vs. Profit

Cash flow and profit are not the same thing. A business can be profitable on paper but still run out of cash. Profit is an accounting concept that includes non-cash items like depreciation and accrued revenue. Cash flow, on the other hand, tracks the actual movement of money in and out of your bank account. Many profitable businesses have gone bankrupt because they did not manage their cash flow properly.

Fixed vs. Variable Expenses

• Fixed expenses remain constant regardless of revenue: rent, salaries, insurance, and loan payments. These are predictable and form the baseline of your monthly obligations.
• Variable expenses fluctuate with revenue: cost of goods sold, sales commissions, shipping costs, and raw materials. As your revenue grows, these expenses grow proportionally.

Cash Runway for Startups

Cash runway measures how many months your business can operate before running out of cash. It is calculated by dividing your current cash balance by your monthly net cash burn. For startups, a healthy runway is typically 12 to 18 months. If your runway drops below 6 months, it is time to either raise funds, cut expenses, or accelerate revenue growth.

Tips for Improving Cash Flow

• Invoice promptly: Send invoices immediately upon delivery of goods or services. Consider offering early payment discounts (e.g., 2/10 net 30).
• Negotiate payment terms: Extend your accounts payable terms with suppliers while shortening your accounts receivable terms.
• Build a cash reserve: Aim to maintain at least 3 months of operating expenses in reserve for unexpected downturns.
• Monitor weekly: Review your cash position at least weekly, not just monthly. Small businesses can experience rapid shifts.
• Reduce inventory: Excess inventory ties up cash. Use just-in-time ordering where possible.

When to Seek Financing

If your forecast shows a cash shortfall, consider your options early. The BDC and Canadian banks offer lines of credit, term loans, and government-backed financing programs. Applying for financing when your cash position is still healthy gives you stronger negotiating power and better terms than waiting until you are desperate.

Seasonal Business Adjustments

If your business experiences seasonal fluctuations, adjust your revenue estimates for each month accordingly. Many Canadian businesses see peaks in Q4 (holiday season) or during summer months. Build up cash reserves during your peak months to cover the lean periods. This calculator uses a steady growth model, so consider running multiple scenarios if your business is highly seasonal.