You’re halfway through the month, sales are steady, but a few invoices are still outstanding. With wages and tax payments on the way, visibility over cash flow can make a real difference. For many small businesses in New Zealand, the challenge often comes down to timing.

That’s where a cash flow forecast can make all the difference. It helps business owners understand what’s coming in and going out, so they can plan ahead, avoid shortfalls and make confident decisions.

This article covers the essentials of cash flow forecasting, with practical steps, common pitfalls, a free template and expert tips from chartered accountant James Scott.

Why small businesses need a cash flow forecast

A cash flow forecast gives small businesses a clearer picture of how money moves in and out over time. It helps with planning for slower months, preparing for large expenses and making more confident decisions about when to invest, hire or pause. It’s also a valuable tool when applying for funding or speaking with a lender.

The cost of poor cash flow forecasting

Without a clear view of cash flow, small issues can quickly disrupt day-to-day operations:

  • Unexpected shortfalls can make it difficult to pay staff, suppliers or rent on time
  • You may need to dip into personal savings to stay on top of expenses
  • Opportunities to grow — like buying stock in bulk or launching a new product — can pass you by
  • Late payments can strain relationships with suppliers and partners
  • Without a forecast, it’s hard to track where money is going or plan with confidence

A simple cash flow forecast can help you avoid these challenges and give you the confidence to make better decisions for your business.

Looking for more ways to improve cash flow? Check out these 7 cash flow tips for NZ businesses.

How to create a straightforward cash flow forecast

Cash flow forecasting doesn’t have to be complicated. At its core, it’s about mapping out when money is expected to come in and when it’s due to go out. By tracking this over time, you can predict your cash position, avoid shortfalls and plan more effectively.

Here’s how to build a basic cash flow forecast:

  1. Choose a forecasting period. Start with the next three to six months. For businesses with variable income, a weekly forecast may offer better visibility.
  2. Estimate incoming cash. Include all expected income, such as customer payments, grants, or investment. Use realistic payment dates, not invoice dates.
  3. List outgoing cash. These are your expenses: wages, rent, inventory, tax payments, subscriptions and more. Be sure to include GST, PAYE and provisional tax — these can make up a significant part of monthly outgoings.
  4. Calculate net cash flow. Subtract your expenses from your income to see whether the business is likely to run a surplus or shortfall. Then assess whether the cash balance is enough to get you through that period.
  5. Update regularly. A forecast should reflect the current state of the business. Review and adjust it as things change — whether it’s delayed payments, higher expenses or seasonal shifts in income.

Expert tip from chartered accountant James Scott:
“Your cash flow forecast isn’t a crystal ball. It’s a guide. Business is unpredictable, so it’s wise to leave a buffer. A good rule of thumb is to have at least three months’ worth of expenses on hand.”

Using the free cash flow forecast template
We’ve included a downloadable Excel template to help you get started. It’s based on the same format accountants use with small business clients and helps you track revenue, direct costs and operating expenses across a 12-month period.

To use it:

  • Input your expected monthly revenue at the top
  • Add your direct and operating expenses further down
  • Include tax payments and any other regular costs
  • Review your net position each month to spot dips in advance

Don’t forget tax!
“GST, PAYE and income tax can add up quickly. For a typical SME with several employees, they can account for up to 20% of incoming cash flow. These payments are often due monthly or quarterly and can be easy to overlook,” says Scott.

He recommends setting aside funds for tax in a separate bank account, either daily or weekly, to avoid surprises when tax time rolls around.

If you’re looking for more ways to improve your incoming cash flow, here are 7 ways to get paid faster.

Pitfalls to watch for in your cash flow forecast

A cash flow forecast is only helpful if it reflects what’s really happening in your business. Here are some of the most common mistakes small business owners make when forecasting, and how to avoid them:

  • Underestimating expenses. It’s easy to forget about irregular or once-a-quarter costs, like insurance, equipment maintenance or tax payments. Make sure to include every expected expense, even if it doesn’t occur monthly.
  • Forgetting about tax. GST, PAYE and provisional tax can add up to 20% of your incoming cash flow. These payments are typically due monthly or quarterly, so they’re easy to overlook. Be sure to account for them in your forecast, and consider setting up a separate bank account to save for tax.
  • Overestimating income. Base your forecast on realistic payment dates, not just invoice dates. If a customer typically pays in 30 days, don’t assume it’ll happen right away.
  • Not adjusting as things change. Your forecast isn’t a one-time task. If your sales dip, unexpected costs arise, or a customer delays a payment, update your forecast accordingly. This will give you a better sense of your position and help you make more informed decisions.
  • Sticking to spreadsheets when things get complex. As your business grows, consider using cash flow management software to simplify forecasting and get a clearer picture of your financial health.

Want more ways to protect your cash flow? Don’t miss these 8 common cash flow mistakes NZ businesses make.

Tools and templates to make forecasting easier

If you’re just starting out, a simple spreadsheet is a great way to get familiar with forecasting. You can
download our free cash flow forecast template to map out your income, expenses and net position over a 12-month period.

But as your business grows, and the complexity of your finances increases, a spreadsheet can start to fall short.

“Cash flow management software can help you plan more accurately. These tools use a three-way forecast that connects your profit and loss, balance sheet and cash flow to give you a fuller picture. They also let you model different scenarios so you can see how changes in your business might impact your cash position,” says Scott.

Some small businesses use tools like Xero, Float or Fathom to automate forecasting and track actuals versus projections. Others stick with spreadsheets but build in regular review points to keep their forecasts up to date.

Whichever approach works best for you, the goal is the same: make cash flow forecasting part of your regular financial rhythm.

What if you’d have flexible access to funds to cover regular expenses and stabilise your ongoing cash flow? Whether you’re stocking up, catching up, or just keeping things moving, the Prospa Line of Credit gives you the flexibility to manage your day-to-day with cash always at your fingertips.