Reading a cash flow forecast: four questions that matter

Cash is the one thing a business cannot fake. A profit and loss can look healthy while the bank balance quietly drains, which is why a cash flow forecast deserves a closer read than most people give it. The trick is knowing what to look for.

1. When is cash lowest, and how low?

The most important point on a cash forecast is the trough, the lowest the balance gets before it recovers. Profit for the year tells you nothing about whether you can make payroll in March. Find the low point first, then work back to what drives it.

2. What is actually moving the balance?

A change in cash is rarely one thing. It is the net of customer receipts, supplier payments, tax, and the timing of all three. A good forecast separates these, so a dip reads as a large supplier run landing before a big receipt rather than an unexplained drop.

3. How sensitive is it to timing?

Cash is a timing story as much as an amount story. If one client paying ten days late pushes you into an overdraft, that is a risk worth naming now. A model built on drivers lets you shift payment terms and watch the trough move, so you see the exposure before it arrives.

• Which customers is the balance most dependent on?
• What happens to the trough if receipts slip by two weeks?
• Is there a recurring monthly squeeze the business has quietly normalised?

4. What would you do about it?

A forecast you cannot act on is just a chart. The value is in the decision it lets you make early.

Every one of these questions ends in an action. Pull a payment forward, arrange a facility, chase a receipt, or simply reassure a nervous board. Read the forecast for the decision rather than the number and it stops being a report and starts being a plan.