What is Cash Flow Forecasting? A Complete Guide for 2025

Cash flow forecasting enables businesses to anticipate cash shortages, plan investments, and avoid insolvency. According to OneDeck’s 2024 Small Business Cash Flow Trend report, 37% of respondents cite inflation as the top concern, followed by cash flow at 30%. Additionally, 70% of small businesses have less than four months of operating cash. For most, operating expenses consume 90% of their revenue.

2024 small business cash flow trend report

Accurate and effective cash flow forecasting can help solve these challenges and optimize financial health. When done right, it increases cash surpluses and can extend runways from months to years. It also empowers businesses to make informed decisions around growth, expenses, and contingency planning. 

A precise forecast helps identify periods of negative cash flow, allowing companies to secure financing or adjust spending in advance—before problems arise. 

But beyond survival, cash flow forecasting supports strategic decision-making. It enables alignment between budgets and operational goals, optimizes resource allocation, and helps evaluate the feasibility of investments. Today’s tools—with automation and predictive analytics—can further refine forecasts for greater accuracy and insight.

This guide will help you understand cash flow forecasting in depth. Up next, we’ll learn about the top tools that help businesses improve forecast accuracy and maximize long-term financial health.

What is Cash Flow Forecasting?

Cash flow forecasting predicts how money will move in and out of your business over a specific timeframe—typically ranging from 13 weeks to a year. This financial practice tracks the timing of expected payments, receipts, and expenses to ensure your business maintains adequate liquidity.

Unlike budgeting, which focuses on planned income and expenditures for a fixed period, cash flow forecasting emphasizes the timing of actual cash movements. While budgets show what you plan to earn and spend, cash flow forecasts reveal when those transactions will occur.

Why Is Cash Flow Forecasting Important? 

Cash flow forecasting acts as a financial compass for businesses navigating economic uncertainty. Projecting future cash positions, companies gain critical visibility into their financial outlook. Here are the top three reasons why it’s essential:

1. Ensuring liquidity and avoiding cash shortages

Regular cash flow forecasting helps businesses maintain adequate cash reserves to meet their obligations on time. For example, a seasonal retail business might see strong sales in December, but experience a 30–45 day delay in cash receipts—leading to a potential cash crunch when February expenses hit. With this foresight, the company can arrange short-term financing or adjust vendor payment schedules accordingly.

2. Planning for growth and investments

Accurate forecasts reveal optimal windows for strategic growth. A manufacturing company planning to expand its equipment, for instance, can use cash flow forecasting to align available cash with investment timing—avoiding costly emergency financing or project delays.

3. Managing financial risks effectively

Cash flow forecasting helps companies anticipate and mitigate financial risks. Consider a software development firm with several large projects. A forecast may show that two major client payments coincide with quarterly tax obligations—highlighting the risk if either client delays payment. This insight allows the firm to take proactive steps, such as staggering payment schedules or securing contingency credit lines.

Types of Cash Flow Forecasting

Finance teams typically use two primary types of cash flow forecasting. Let’s understand both of them in detail.

1. Short-term forecasting: managing daily and weekly cash flow

Short-term forecasting covers periods ranging from 30 days to 60 days and focuses on immediate operational liquidity. Businesses use this granular approach to track cash movements with high precision to meet short-term needs.

Retailers especially benefit from short-term forecasting during seasonal fluctuations. For example, a beachwear company might forecast daily cash positions during its peak summer season to ensure it can continue purchasing inventory and covering payroll—even when customer payments fluctuate due to weather-related dips in foot traffic.

2. Long-term forecasting: strategic planning for future financial health

Long-term cash flow forecasting extends from several months to a year, supporting strategic decision-making and capital planning. While less precise than short-term forecasts, these projections help businesses align their cash flow with long-range goals.

Healthcare facilities often rely on long-term cash flow forecasting for major capital investments. A hospital, for instance, might create a five-year forecast to plan a $20 million MRI suite expansion—identifying which quarters offer sufficient cash reserves while maintaining a buffer for unexpected costs.

Both forecasting types complement each other. Short-term forecasts ensure immediate operational stability, while long-term forecasts guide strategic planning. Companies often maintain rolling forecasts that offer both perspectives. A smart approach is to update short-term projections weekly and long-term projections quarterly for effective cash flow management.

Key Steps in Creating a Cash Flow Forecast 

Creating a reliable cash flow forecast involves understanding where your money comes from, where it goes, and how timing affects your business’ financial health. Here's a step-by-step breakdown:

1. Identify income sources

Begin by listing all sources of cash inflow, including sales of products or services (both cash and credit), interest from investments or bank deposits, government grants or subsidies, and other revenue streams (e.g., affiliate marketing).

A small restaurant might track cash inflow from food and beverage sales, catering services, and event hosting. A software company could include license sales, subscriptions, consulting fees, and ad revenue.

Be thorough—omitting a revenue stream can lead to inaccurate forecasts. Categorize income as recurring (e.g., subscriptions) or one-time (e.g., large contracts) to better anticipate timing and variability.

2. Estimate cash outflows

Identify all expenses that reduce your cash balance. Categorize them into:

• Fixed costs: Rent, salaries, insurance—predictable and consistent
• Variable costs: Cost of goods sold, sales commissions, shipping costs—fluctuate with business activity
• Capital expenditures: Long-term purchases like equipment
• Debt repayments: Principal and interest on loans
• Taxes: Income tax, payroll tax, sales tax, etc.

Use historical data to estimate these amounts, adjusting for expected changes such as business growth or market conditions. Irregular expenses, like tax payments, should also be included, ensuring the forecast captures all cash outflows accurately.

3. Calculate net cash flow

Net cash flow is calculated as:

Net Cash Flow = Total Cash Inflows - Total Cash Outflows

This calculation can be done monthly, quarterly, or annually, depending on your needs. Cash flow is not the same as profit—it reflects when money is received or spent, not when it's earned or incurred.

For example, if your business makes $50,000 in cash sales and $8,000 in credit sales (paid next month), and spends $40,000 on expenses, your net cash flow is $10,000—ignoring the $8,000 until it's collected.

Accounts receivable and payable play a big role. If clients delay payment, cash flow suffers, even if revenue looks strong. To counter this, businesses might offer discounts for early payments or adjust vendor terms to protect liquidity.

4. Adjust for seasonal fluctuations

Many industries experience seasonal peaks and troughs. To adjust for them:

• Analyze 2–3 years of historical data to identify trends
• Modify forecasts based on predictable cycles (e.g., holidays, summer slowdowns)
• Use industry benchmarks if internal data is limited

For instance, a beachside hotel may forecast high inflows and increased staffing in summer. A tax firm, on the other hand, sees most income between January and April. Consider external variables like weather or economic conditions as part of your seasonal planning.

5. Review and refine forecasts regularly

Forecasts are only as useful as their accuracy over time. Best practice includes:

• Comparing actual vs. forecasted figures
• Analyzing discrepancies and their causes
• Updating future forecasts based on new data, trends, or shifts in business plans

Regular reviews—monthly for short-term, quarterly for long-term—help maintain agility in your financial planning.

Cash flow forecasting best practices

• Use accurate, real-time data and appropriate methods (e.g., moving averages for sales trends)
• Involve stakeholders across departments for holistic inputs
• Regularly update forecasts to reflect market or operational changes
• Track smaller recurring expenses—they add up
• Account for one-time costs and seasonal variations
• Separate credit sales from cash sales to avoid overestimating liquidity

Cash Flow Forecasting for SMBs vs. Enterprises

Cash flow forecasting is critical for business sustainability, but the approach varies significantly between small and medium businesses (SMBs) and large enterprises. Here’s a look at the challenges small businesses face—and how enterprises are solving them.

1. Inaccurate data collection

SMBs often rely on manual processes for forecasting, which increases the risk of errors and data silos. Nearly 25% of small businesses face cash flow issues due to disconnected systems. Blackline's 2024 survey also finds that 40% of CFOs don't trust the accuracy of their data. It negatively impacts decision-making.

2. Manual processes 

According to the PYMNTS 2022 survey, 72% of organizations forecast cash flows manually. In 2024, too, 59% of U.S. businesses reported outdated methods as the top reason for poor cash flow and forecasting.

To address this, many SMBs are adopting automated accounts receivable (AR) and accounts payable (AP) solutions to integrate payment data into their forecasts. In fact, 84% of SMBs that implemented these tools reported improved cash flow, according to a joint study by PYMNTS and American Express.

3. External vulnerability

According to PYMNTS 2025 survey report, around 57% invoices are paid late, with 33% taking more than 90 days to settle. Also, a 2024 survey finds that nearly 22% of U.S. SMBs have less than six months of cash reserves. Delayed payments further amplify this problem. Forty-one percent of SMBs in the U.S. have adopted all-in-one payment solutions to mitigate these risks.

Enterprises approach forecasting differently by integrating advanced technologies and scalable methodologies. While SMBs often depend on spreadsheets or manual tracking, enterprises are increasingly using automation and predictive analytics to drive accuracy and efficiency. Enterprises also use integrated ERP and treasury management solutions that offer higher accuracy and centralized visibility.

Enterprises that adopt machine learning-based models achieve greater forecasting accuracy. These tools outperform traditional statistical methods, especially when analyzing large and complex datasets. Features like competitor pricing and seasonal demand trends can be automatically factored in for better precision. Additionally, predictive analytics helps enterprises identify key performance drivers—such as marketing ROI or operational inefficiencies—making forecasts not just accurate, but actionable.

In contrast, SMBs often face challenges like limited resources, lack of automation, and reliance on judgment-based inputs. Meanwhile, the strategic use of technology enables enterprises to improve forecast reliability and adapt more effectively to market volatility.

4 Best Cash Flow Forecasting Tools in 2025

1. Limelight

 Limelight financial budgeting and forecasting software overview

Limelight helps you transition to agile cash flow forecasting by automating calculations and integrating data from key financial sources like the P&L and balance sheet. This cloud-based, Excel-free FP&A platform provides real-time insights, enabling your finance team to closely monitor cash positions and dynamically update forecasts with accuracy. With features like rolling forecasts, scenario planning, and customizable dashboards, Limelight helps organizations anticipate financial trends, manage liquidity effectively, and make faster, data-driven decisions.

Limelight’s automated rolling forecasts continuously update using real-time data, ensuring agile resource allocation and strategic adjustments. Its flexible modeling adapts to your unique operational needs, while ready-to-use forecasting templates allow you to run models quickly. The platform also offers driver-based planning for greater precision by focusing on key factors like sales volume or costs. Robust variance analysis compares actuals to projections, helping you identify and resolve discrepancies. Scenario analysis enables you to model “what-if” situations, enhancing preparedness for uncertainty.

Pros and cons

Pricing 

Limelight’s pricing begins at $1,400 per month on a subscription basis. Institutions can get started with as few as five users and expand by adding more licenses as needed.

In contrast to many other FP&A platforms, Limelight offers full access to all features and unlimited data usage within its pricing, delivering both cost-effectiveness and scalability for organizations of any size.

2. Anaplan

Anaplan financial forecasting software

Anaplan enhances cash flow forecasting with a flexible, real-time platform that integrates data from accounts receivable, accounts payable, and other sources. It supports both short- and long-term modeling, factoring in invoices, payment terms, and employee costs. Scenario modeling lets users test "what-if" situations—like changes in payment terms or currency rates—to optimize strategies. Granular forecasting enables transaction-level accuracy, while flexible time hierarchies allow daily, weekly, or monthly views. Anaplan’s connected planning pulls financial data from multiple systems, providing a comprehensive view for cash flow management.

Pros and cons

 
Pricing 

Contact the sales team for pricing details.

3. Cube Software

Cube financial forecasting solution

Cube Software streamlines cash flow forecasting by integrating with existing spreadsheets and financial models. It allows finance teams to work in familiar environments like Excel and Google Sheets while automating data collection, consolidation, and synchronization from systems such as ERP, CRM, and HRIS.

Cube Software supports scenario planning to evaluate the impact of different financial outcomes on cash flow. Customizable dashboards offer clear visual analytics and support multi-currency transactions. The platform also helps maintain accurate cash positions, optimize liquidity management, and adapt to changing financial conditions.

Pros and cons

 
Pricing 

Cube offers custom pricing. You can contact the sales team for pricing details.

4. Planful

Planful cash flow forecasting solution

Planful simplifies cash flow forecasting by offering a cloud-based, driver-based forecasting platform that combines automation, scenario analysis, and real-time collaboration. It helps optimize short-term liquidity and plan for long-term growth by providing clear insights into cash inflows and outflows.

The platform enhances cash flow forecasting with driver-based modeling, allowing users to build assumption-driven scenarios and run "what-if" analyses to assess impacts like payment shifts or revenue changes. It also offers flexibility to forecast using direct or indirect methods. Planful’s centralized collaboration features keep finance teams aligned, streamline stakeholder engagement, and support progress tracking.

Pros and cons

 
Pricing 

Contact the sales team for pricing details.

How Limelight Helps Businesses with Cash Flow Forecasting 

Limelight simplifies cash flow forecasting by automating key processes and providing actionable insights, helping businesses make informed decisions at the right time. The platform integrates seamlessly with ERP systems, offering real-time visibility into financial data and enabling timely strategic adjustments.

1. Real-time cash flow tracking and reporting

Limelight real-time tracking and reporting feature 

Limelight links directly to P&L and balance sheet data to provide real-time updates on cash inflows and outflows. This eliminates the need for manual calculations and supports proactive financial management. Monitor liquidity instantly and detect trends or anomalies as they arise.

2. Automated data consolidation from ERPs

Limelight data consolidation feature

Limelight integrates with ERP systems like Sage Intacct and Microsoft Dynamics, automating the consolidation of financial data across departments. Reduce forecasting errors, speed up processes, and empower finance teams to work from a single source of truth for more accurate cash flow projections.

3. Scenario planning and predictive analytics

Limelight scenario planning and analysis feature overview 

Limelight enables dynamic "what-if" scenario modeling—such as market fluctuations or delayed receivables—so businesses can better prepare for uncertainty. Predictive analytics powered by historical data enhances the accuracy of these projections, helping you build resilient, forward-looking cash flow strategies.

4. Custom dashboards for better decision-making

Limelight interactive dashboard feature overview

Interactive dashboards in Limelight turn cash flow data into visual insights through intuitive charts and graphs. Stakeholders can quickly identify trends, outliers, and potential risks. These dashboards are customizable, making it easy to drill into the data that matters most—supporting smarter, faster decisions across the organization.

Effective cash flow forecasting is essential to anticipate shortfalls, fund investments, and maintain solvency. Limelight streamlines and strengthens this process, giving your organization the tools to achieve financial clarity, stability, and long-term growth.

Try Limelight now and experience smarter, more agile cash flow forecasting.

FAQs

1. What is cash flow forecasting?

Cash flow forecasting predicts the movement of cash in and out of a business over a specific period. It helps businesses anticipate liquidity needs, plan expenditures, and ensure financial stability by estimating future cash balances.

2. Why is cash flow forecasting important?

Cash flow forecasting is crucial for maintaining financial health. It helps businesses avoid cash shortages, plan for growth, and manage risks effectively.

3. How do you create a cash flow forecast?

To create a cash flow forecast, identify your starting balance, estimate expected income (e.g., sales, refunds), and list expenses (e.g., taxes, fees). Subtract outflows from inflows to project your liquidity over time.

4. What are the best cash flow forecasting tools in 2025?

Top tools in 2025 include Limelight, Anaplan, Cube Software, and Planful. Each tool offers distinct features to optimize cash flow management.