How to create a cashflow forecast

_{Welcome to Ask an Accountant, a weekly column where Ramp’s resident accountant, Penny Nichols, answers questions submitted by our SMB customers. Many thanks to Edwine Alphonse and our accounting firms contributing to this week’s answer.}

Dear Penny Nichols,

I just launched a startup, and cash flow already feels like a constant challenge. How do I create a cashflow forecast?

Dear Cashflow concerns,

Oh, cash flow—the heartbeat of your startup’s existence (or its existential dread). Welcome to the 13-week cash flow forecast party, where every dollar’s arrival and departure is tracked. This tracking is so important as you want to properly manage your most important resource: MONEY.

But why is cash flow such an important thing? And how do you create the perfect cashflow forecast? Let’s break it down.

Inflow extravaganza

First, you need to create an inventory of all the accounts where you have money. Count each penny and list the dollar value as a starting point to see what total cash is available at your start date.

Second list of all the sources of your incoming cash. And we mean all of it. Customer payments, loans, investments, fundraising dollars from your investors, even that long-awaited grant you’re chasing

Create a neat spreadsheet column for each week (yes, every single one of them over the next 13 weeks) and forecast the cash you expect to receive.

Be realistic—and brutally honest: if you’re not sure when a payment will land, mark it as “pending” and have a backup plan. Remember, a forecast is not a crystal ball; it’s a budgeting tool that helps you plan ahead.

Outflow overload

Now, tally every penny that has left or will leave your bank account Break them into the following categories:

Non-discretionary expenses (you have no choice than to incur them) : Rent, salaries, recurring subscriptions, etc. Anything that occurs on a regular basis and that is essential for the business to operate

Discretionary expenses (you can cut them if needed): Marketing spend, additional materials, contractors, travels and entertainments and any miscellaneous expenses (because startups are messy, right?).

Unexpected Costs: You can’t plan for the unplannable, but by looking at the past, you can start to understand how much of your budget consists of those surprise costs

Keep a running total so that each week you can subtract your outflows from your inflows. Spoiler alert: if the math makes you frown, you’re likely headed for a cash crunch.

Repeat for 13 weeks

Simply copy your one-week template 13 times—label each as Week 1 through Week 13. Update your starting cash balance by adding each week’s net cash flow to the previous week’s ending balance. Ensure that your totals reconcile with your bank activities and weekly bank balances.

Voila—a rolling forecast that reveals exactly when your cash might run dry.

Customer or Vendor Negotiations: Who’s taking the hit?

Cash flow management is all about strategies. Consider your points of leverage and prepare to negotiate.

1. Customer negotiations:

Can your customers pay in advance? Are you able to have them pay upfront for your products or services? If yes, consider offering them incentives to do so to expedite your cash receipts, so you can meet your pressing obligations (such as payroll).

Also, are you able to use a loan, a line of credit or should you start thinking about your next fundraising.

1. Vendor negotiations:

Next, identify which vendors are crucial to your operations (think suppliers, landlords, and even your utilities provider if you’re running a SaaS startup).

Now, channel your inner tough negotiator:

Extend payment terms: Ask if you can push payment dates further out—remember, you’re not paying for a luxury cruise; it’s just your everyday business expenses.

Discounts for early payment: Conversely, if you’re flush with cash one week, see if paying early can net you a discount.

Alternatives: If one vendor isn’t budging, you may want to scout for alternatives. Your business deserves a vendor who respects your cash-flow challenges.

The Grand Finale

Now for the big, nerve-wracking question: “When am I going to run out of cash?”

Track your weekly balances: Start with your current cash balance and update it weekly by subtracting outflows from inflows.

Spot the red: Mark the week when your forecast dips into the red. That’s your “warning shot”—time to tighten your belt, negotiate more aggressively with customers, bankers, vendors, or consider an emergency cash infusion. Ensure you actively communicate any findings with your management team, nobody likes to be surprised. Extra cash flows mean that there is idle cash that can be invested to advance the business and cash crunch is an indication that there are some hard decisions to be made. Keep the dialog open with your execs and circulate your cash flow forecast.

Remember, a 13-week cash flow forecast isn’t about being a doom-and-gloom prophet—it’s about preparing for the bumps in the road with a healthy dose of realism and a sprinkle of sass. So, buckle up, keep your eyes on the numbers, and turn that forecast into your startup’s financial GPS.

Wishing you a profitable journey (and fewer cash crises),

Penny Nichols

Please note, Ask an AccountantThe advice and strategies provided in this post are offered for general informational purposes only and do not constitute professional financial, legal, or business advice.