Cashflow forecasting - know your numbers like your business depends on it

A cashflow forecast projects the money flowing into and out of your business over a future period - typically 30, 90, or 365 days. It helps you spot when cash shortfalls might hit, plan for large expenses, and make informed decisions about hiring, investment, or debt repayment. The most comprehensive approach is a 3-way forecast, which combines your profit and loss, balance sheet, and cashflow projections into a single model so you can see how changes in revenue, expenses, or capital expenditure affect your actual bank balance

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

Xero includes a Short-term Cash Flow report, but it only looks 7 or 30 days ahead using unpaid invoices and bills. It ignores recurring expenses like wages, rent, and loan repayments, and it can't model scenarios or project beyond 30 days. For meaningful cashflow forecasting, connect a dedicated tool to Xero - Float, Fathom, Futrli, or Calxa all pull live data from your Xero file and project cashflow over 12 months or more with adjustable assumptions

The best cashflow forecasting tool depends on how your business operates. Some businesses have weekly cash patterns and benefit from a tool like DryRun. Others run on monthly cycles where Float is a strong fit. For more complex businesses, Fathom, Futrli, or Calxa provide deeper modelling. The most important criteria are that the tool connects to Xero so it pulls live financial data automatically, and that it lets you build a forecast that accurately reflects what you expect will happen in your business going forward

A three-way forecast is a financial model that combines your three main financial reports into one consolidated view. It brings together your Income Statement (Profit and Loss), Balance Sheet, and Statement of Cash Flows into a single model. This lets you forecast how changes in income or expenses affect your cash position, or how decisions to invest in assets or pay down debt impact your available cash over time