How Can an Accountant Help with Cash Flow Forecasting

Introduction

Cash flow forecasting is the process of predicting how much money will move into and out of your business over a specific period. It helps you understand when cash shortages may occur and when you will have surplus funds to reinvest.

Many businesses underestimate the importance of cash flow forecasting until they face a liquidity crisis. Accountants are skilled at analysing financial data and can create accurate forecasts that help you stay ahead of potential problems.

Why cash flow forecasting matters

Poor cash flow management is one of the most common reasons small businesses fail. You might have a strong order book and solid profits, but if customers delay payments or expenses rise unexpectedly, you can quickly run out of working capital.

A cash flow forecast allows you to:

Anticipate shortfalls and take corrective action early.

Plan investments, such as equipment or staff, with confidence.

Manage loan repayments and tax obligations effectively.

Build trust with lenders and investors by showing financial control.

An accountant ensures your forecasts are realistic, based on accurate financial data rather than assumptions.

How an accountant helps with cash flow forecasting

1. Analysing your current financial position

Before creating a forecast, an accountant reviews your current financial records. They analyse:

Bank statements and cash balances.

Debtors and creditors.

Invoices issued and outstanding.

Fixed and variable expenses.

This initial assessment provides a clear picture of your liquidity and helps identify patterns such as seasonal fluctuations or recurring cash gaps.

2. Creating accurate cash flow forecasts

Accountants use accounting software or spreadsheets to project cash flow over weeks, months, or even years. They consider:

Expected sales and customer payment terms.

Regular expenses such as rent, wages, and utilities.

Irregular or one-off costs such as tax bills, equipment purchases, or loan repayments.

The result is a detailed forecast that shows when your cash balance might rise or fall, allowing you to plan accordingly.

3. Monitoring performance against forecasts

A forecast is only useful if it is updated regularly. Accountants compare actual performance against projected figures to identify discrepancies.

If cash inflows are lower than expected or expenses rise, your accountant can help adjust your plan quickly. This ongoing monitoring helps prevent surprises and ensures your forecast remains accurate as conditions change.

4. Managing working capital

Accountants can recommend strategies to improve working capital and keep your cash position healthy. These might include:

Negotiating better payment terms with suppliers.

Encouraging customers to pay faster with incentives or direct debit options.

Managing inventory more efficiently to reduce storage costs.

Delaying non-essential purchases until cash flow improves.

By balancing your income and outgoings, an accountant ensures you always have enough liquidity to cover day-to-day operations.

5. Preparing for tax and other obligations

Unexpected tax bills are a common cause of cash flow problems. An accountant ensures you set aside enough money for VAT, Corporation Tax, or Income Tax.

They can also schedule these payments in your forecast so that you know exactly when and how much you will owe. This prevents last-minute stress and reduces the risk of late payment penalties.

6. Supporting funding and investment decisions

If your forecast shows a future cash shortfall, an accountant can help you plan how to raise additional funds. They can:

Prepare projections and reports for banks or investors.

Help you apply for loans, overdrafts, or grants.

Advise on whether to use retained profits, credit, or external investment.

Accurate cash flow forecasting demonstrates to lenders that you understand your finances and can manage repayment responsibly.

7. Improving profitability and efficiency

Cash flow forecasts often highlight inefficiencies within a business. For instance, you may discover that slow-paying clients are creating cash gaps or that certain costs are consistently higher than expected.

Your accountant can help identify these problem areas and suggest improvements, such as better credit control or renegotiating supplier contracts.

Example

A construction firm often struggled with irregular cash flow due to delayed payments from clients. Their accountant created a rolling three-month forecast that tracked incoming payments and supplier invoices. The forecast showed recurring shortfalls in certain months, allowing the firm to negotiate improved payment terms and arrange a short-term credit facility. Within six months, cash flow stabilised, and the business could plan projects more confidently.

Tools accountants use for forecasting

Accountants use professional accounting software to make forecasting accurate and efficient. Common tools include:

Xero and QuickBooks, which offer built-in cash flow reports.

Float, Futrli, or Fluidly, which integrate with accounting platforms to provide visual forecasts.

Customised spreadsheets for bespoke forecasting models.

These tools pull data directly from your accounts to ensure real-time accuracy and easy updates.

How often should forecasts be reviewed

A cash flow forecast is not a one-time exercise. Your accountant should review and update it at least monthly, or more frequently if your business experiences significant fluctuations.

Regular reviews ensure that forecasts remain aligned with your actual financial performance, making them a reliable tool for decision making.

The benefits of using an accountant for cash flow forecasting

Provides accurate, data-driven forecasts based on professional analysis.

Saves time by automating calculations and integrating financial systems.

Offers early warning of potential cash shortages.

Supports better budgeting, investment, and borrowing decisions.

Reduces the risk of financial stress and insolvency.

By understanding the timing of cash inflows and outflows, you can make informed business decisions and avoid unnecessary borrowing or missed opportunities.

Common mistakes businesses make without professional help

Overestimating sales and underestimating expenses.

Forgetting to include tax payments or seasonal variations.

Failing to update forecasts regularly.

Relying on incomplete or inaccurate accounting data.

An accountant prevents these errors by basing forecasts on real financial information and ensuring they reflect current market conditions.

Example scenario

Laura runs a small retail business. Her accountant prepares a six-month rolling cash flow forecast that tracks sales, rent, and supplier payments. When sales dip in the quieter months, the forecast shows potential shortfalls. Her accountant advises her to negotiate extended supplier terms and reduce stock purchases temporarily. This proactive approach prevents cash shortages and helps Laura maintain a healthy bank balance throughout the year.

Conclusion

Cash flow forecasting is a vital part of financial planning, and an accountant plays a key role in making it accurate and effective. By analysing your finances, identifying risks, and helping you plan ahead, an accountant ensures your business remains stable and ready for growth.

Whether you are a sole trader or running a limited company, professional cash flow forecasting provides clarity, reduces stress, and allows you to make informed decisions with confidence.