Andrew Hustwit, Head of Business Development at BCRS Business Loans, outlines how to create a cash flow forecast for small businesses in England and Wales.

For many small businesses, it’s the paperwork that holds them back from applying for finance, especially the parts that feel like they belong to accountants and finance teams. You might be an SME looking for funds to expand or a self-employed person who needs a short-term cash boost to get by, but you’ve been asked for a cash flow forecast by your lender.

You’ve stopped dead in your tracks. Do I have one already? Where do I start? What do I need?

Don’t worry. A cash flow forecast isn’t complicated. Once you understand what a lender is actually looking for, it becomes far less daunting and considerably more useful.

What is a cash flow forecast?

A cash flow forecast is a month-by-month projection of the money you expect to come into and go out of your business over a set period. For a loan application, this is typically over 12 months. It shows:

• Your opening bank balance
• Your expected income
• Your expected outgoings
• What your closing balance looks like at the end of each month

That’s it. It’s not a guarantee of the future, and it’s not something you’ll be judged upon. It’s a structured picture of what you reasonably expect based on what you know about your business from the facts and figures available.

At BCRS, we don’t use computerised credit scoring like most high-street lenders. We meet you face to face and get to know your business, and your cash flow forecast is one of the tools that helps us understand your business the way you do.

What to include in a 12-month cash flow forecast

A business cash flow forecast has three main components: income, outgoings and net cash position. These figures will give you transparency over what you can or can’t afford to do without adding more risk. For an established business, use last year’s figures as a starting point.

The goal is to get clarity on your business’s financial health and if you can afford to repay the loan you’re about to apply for.

Note: For any SMEs facing serious and immediate financial difficulties, seek professional financial advice as soon as possible.

How to build a forecast for your business

Here’s a 6-step formula to build a cash flow forecast, using advice from the British Business Bank. You can do this on paper to start with or on a digital spreadsheet like Excel or Google Sheets to be updated as your figures become clearer.

1. Start with your opening balance: This is the amount currently in your business bank account and will be your starting point.
2. Work out your outgoings in full. Include fixed costs like rent, salaries and repayments, and variable costs like materials, marketing spend and travel. Fixed costs are predictable; variable costs require careful estimation. Reflect any seasonal fluctuations, too.
3. Project your income realistically. A forecast showing strong, steady growth with no dips may raise questions. Lenders value self-awareness. Acknowledging a slow January or quieter summer demonstrates you understand your business.
4. Check for missing items. Include receipts or invoices from customers that haven’t yet been paid, payroll and tax information, and if you have debt or loan repayments.
5. Add in the approximate loan repayments. Many business owners don’t account for the amount they’ll need to repay of the loan they’re applying for, but it’s beneficial for you and the lenders to see if the business can absorb it.
6. Calculate the closing balance for each month. Use this formula: opening balance + income – outgoings. Continue that final figure as the next month’s opening balance and repeat for 12 months.

Now, look at the figures you have. Do you have the capital you thought you did? Will it help you achieve the growth you’re aiming for? Or do you need to start recovery plans?

Mistakes in your forecast that weaken your loan application

Common mistakes appear in cash flow forecasts. With BCRS, you’ll have someone to support you through every step of the business loan process, but it’s useful to know what challenges may arise.

• Putting numbers in the wrong box. It may seem like a minor technical error, but misplacing where money belongs in a forecast can make your numbers look untidy to a lender and make the whole picture misleading, even if the figures are accurate.
• Assuming the past will repeat. Costs rise and customer behaviour changes, so there may be new pressures that weren’t there 12 months ago. Your forecast should reflect current realities.
• Treating it as a one-off task. A forecast should be updated regularly, not created once and forgotten.
• Overlooking irregular costs. A forecast that only captures regular standing orders can fall short. Costs like annual renewals, equipment servicing, or VAT bills don’t appear as monthly direct debits, so some business owners forget they exist until they come around.
• Overcomplicating your spreadsheet. Use tools you can manage confidently. Many SME owners may build forecasts on digital tools that are difficult to interpret or hard to update without formulas breaking.
• Not including the loan repayment. This signals you haven’t fully considered the commitment, even if the rest of your application is strong.

What does BCRS look for in a cash flow forecast?

We’ve supported small businesses across the West Midlands and Wales since 2002, often to those outside traditional lending criteria and with bad credit. What matters most is that you understand your business; it’s not about a perfect application.

We look for evidence that you:

• Know your numbers
• Have acknowledged seasonality
• Include all fixed, variable and irregular costs
• Have realistic expectations

We also want to know whether your business can service the loan you’re applying for comfortably, even in slower months. A tight month isn’t a concern if you’ve recognised it and have planned with that in mind.

What comes next?

Once your forecast is complete, review the rest of your loan application.

If you haven’t yet applied, ensure you have the required documents ready. If your application is in progress, your business manager will review your forecast and guide you through the next steps.

Spark your journey to business growth today

Our initial application takes less than two minutes. From there, you’ll work with a specialist business development and lending manager who will help you refine your application and support your journey to success.