A cashflow forecast is an estimate of the amount of money you expect to flow into and out of your business. The best type of cashflow forecast is a 3-way forecast as it look at the relationship between your profit and loss (income statement), balance sheet and cashflow projections together so you have a clear picture of both your future cash position, and the financial health of your business. Cashflow forecasting is best done as a regular activity to understand how changes in your business conditions impact your future plans
A budget is designed to predict expected revenue and expenses during a specific period before the budgeted period starts. It's usually prepared for one accounting period, and is usually limited to the income statement (or profit and loss) accounts. People usually compare a budget to actuals when looking back at how the business performed. A forecast is an estimate of financial outcomes based on set assumptions, and can be prepared in a way that combined your financial health (balance sheet), cashflow, and profit and loss to get a clearer picture of the future. A budget and a forecast are not the same things, and business owners sometimes use them interchangeably despite having different goals
A rolling forecast is designed to be a live financial plan. It's a forecast that is updated regularly throughout the year to adjust assumptions, and provide an accurate view of the future of the business over a longer timeframe. Typically you might see a rolling forecast prepared over a 12, 24, or 36 month timeframe - providing long term insights into the financial performance of a business
You can forecast cashflow in Xero in a limited way. Xero has a basic cashflow forecasting tool called the Short-term Cash Flow report. It uses invoices and bills, their due dates and expected payment dates to predict cash coming into the business and cash going out. It doesn't look at recurring expenses like wages, spend or receive money transactions, and only looks at either a 7 or 30 day time period. For a clearer forecast of your cashflow, you need to look at forecasting addons
The best cashflow forecasting tool to use is different for each business. Some businesses have weekly patterns in their business and so a tool like DryRun might be the best to use. Other businesses might be monthly, so Float might be the right solution for them. For more complex businesses you could consider Futrli, Fathom or Calxa. The most important thing to look for in a cashflow forecasting addon is that it connects to Xero, so that it can pull the financial data out and automate the process. And that it allows you to build a cashflow that accurately reflects what you estimate will happen in your business into the future
A three-way forecast is a financial model that combines your 3 main financial reports into one consolidated report. It combines your Income Statement (Profit & Loss), Balance Sheet, and Statement of Cashflows together into a single model. Doing this allows you to forecast how changes in your income or expenses impact your cashflow, or decisions to invest in assets or pay down liabilities impact your cashflow.