Cash Flow Forecasting for Startups: A Practical Guide
A cash flow forecast tells you when you'll run out of money—and helps you make sure you never do. Here's how to build one that actually works.
What Is a Cash Flow Forecast?
A cash flow forecast is a projection of your future cash inflows and outflows. It shows you how much cash you'll have at any point in the future, helping you avoid surprises and make better decisions.
Your runway calculation tells you how long your cash will last at the current pace. But a cash flow forecast goes further—it projects what happens as revenue grows, expenses change, and your business evolves.
In our work as fractional CFOs, we build cash flow forecasts for every client. It's the single most important financial tool for a growing startup—and yet most founders don't have one.
Why Cash Flow Forecasting Matters
A cash flow forecast helps you answer critical questions:
Timing Questions
- • When will we run out of cash?
- • When should we start fundraising?
- • When can we afford to make that hire?
- • When will we hit cash flow positive?
Decision Questions
- • Can we afford this marketing campaign?
- • What if our biggest customer churns?
- • Should we take on this large project?
- • How much runway do we need to raise?
Without a forecast, you're flying blind. With one, you can see problems coming months in advance and course-correct before they become emergencies.
Types of Cash Flow Forecasts
There are two main approaches to cash flow forecasting, each serving different purposes:
13-Week Cash Flow Forecast
A detailed, week-by-week projection for the next quarter. Highly accurate because it's based on known commitments and near-term expectations.
Best for:
- • Short-term cash management
- • When runway is tight (< 6 months)
- • Managing payables and receivables
- • Weekly cash monitoring
12-24 Month Rolling Forecast
A monthly projection looking 1-2 years ahead. Less precise but essential for strategic planning and fundraising.
Best for:
- • Strategic planning
- • Fundraising preparation
- • Headcount planning
- • Board reporting
Our recommendation: Start with a 12-month rolling forecast. If your runway drops below 6 months, add a 13-week forecast for tighter cash management.
Building Your Cash Flow Forecast
Here's a step-by-step approach to building a practical forecast:
Step 1: Set Up Your Structure
Create a spreadsheet with months as columns and categories as rows. The basic structure looks like this:
Basic Forecast Structure
| Category | Jan | Feb | Mar | ... |
|---|---|---|---|---|
| Starting Cash | $500,000 | $455,000 | $415,000 | ... |
| + Revenue Collected | $30,000 | $35,000 | $40,000 | ... |
| - Payroll | ($55,000) | ($55,000) | ($55,000) | ... |
| - Software & Infra | ($8,000) | ($8,000) | ($8,000) | ... |
| - Marketing | ($10,000) | ($10,000) | ($10,000) | ... |
| - Other Operating | ($2,000) | ($2,000) | ($2,000) | ... |
| = Net Cash Flow | ($45,000) | ($40,000) | ($35,000) | ... |
| = Ending Cash | $455,000 | $415,000 | $380,000 | ... |
Step 2: Start With What You Know
Begin by entering known commitments:
- Current cash balance – Start with today's bank balance
- Committed revenue – Contracts already signed
- Fixed expenses – Payroll, rent, subscriptions
- Known one-time items – Equipment, annual payments
Step 3: Project Forward
Now project the unknowns based on reasonable assumptions. More on this in the sections below.
Projecting Revenue
Revenue projection is the trickiest part. Here are approaches for different business models:
SaaS / Subscription Revenue
Base formula: (Prior Month MRR) × (1 + Net Growth Rate)
Build it up from:
- • Starting MRR
- • + New customer MRR (based on sales pipeline)
- • - Churned customer MRR (based on churn rate)
- • + Expansion MRR (based on upsell rate)
Transaction / Usage Revenue
Base formula: (Users) × (Transactions per User) × (Revenue per Transaction)
Key drivers:
- • User/customer growth rate
- • Usage patterns and seasonality
- • Pricing changes
Services Revenue
Base formula: (Billable Hours) × (Blended Rate) × (Utilization)
Key drivers:
- • Team size and capacity
- • Pipeline of signed and proposed projects
- • Historical utilization rates
Critical: Project cash collected, not revenue recognized. If customers pay net-30 or net-60, revenue this month becomes cash next month or the month after. This timing difference matters.
Projecting Expenses
Expenses are generally more predictable. Break them into categories:
| Category | How to Project |
|---|---|
| Payroll | Current team cost + timing of planned hires. Include benefits (typically +20-30%) |
| Software/SaaS | Current subscriptions + expected additions. Note annual billing dates. |
| Infrastructure | Current hosting costs × growth factor. Often scales with usage. |
| Marketing | Based on planned campaigns and channels. Often discretionary. |
| Professional Services | Legal, accounting, consulting. Estimate based on planned activities. |
| Office/Operations | Rent, utilities, supplies. Usually stable month-to-month. |
Pro Tip: Don't Forget These
- • Payroll taxes (employer portion, ~7.65% of wages)
- • Quarterly estimated tax payments
- • Annual insurance renewals
- • Year-end bonuses
- • Contractor 1099 payments
Scenario Planning
A single forecast isn't enough. You need scenarios that show how different outcomes affect your cash position.
Best Case
Revenue hits targets, deals close on time, no surprises
+20% vs base
Base Case
Your most realistic expectation
Primary forecast
Worst Case
Revenue misses, key customers churn, unexpected costs
-30% vs base
Key question: In your worst case scenario, when do you run out of cash? This is your "must act by" date for fundraising or runway extension.
Maintaining Your Forecast
A forecast is only useful if it's current. Here's a maintenance cadence:
| Frequency | Activity |
|---|---|
| Weekly | Update actual cash balance. Review variance to forecast. Adjust near-term projections. |
| Monthly | Roll the forecast forward one month. Update revenue assumptions based on latest data. Review and adjust expense projections. |
| Quarterly | Deep review of all assumptions. Extend forecast horizon. Update scenarios. Compare actuals to forecast from 3 months ago. |
Tracking Forecast Accuracy
Good forecasting improves over time. Track your accuracy:
- Compare actual ending cash to forecasted ending cash each month
- Identify where you were off and why
- Adjust your methodology based on learnings
- Aim for ±10% accuracy on a monthly basis
Common Forecasting Mistakes
Over-Optimistic Revenue Projections
The #1 mistake. Founders consistently overestimate how fast revenue will grow. Use conservative assumptions and be pleasantly surprised.
Ignoring Collection Timing
Revenue recognized isn't cash collected. If you have net-30 terms, you won't see that cash for at least 30 days—often 45-60 in practice.
Forgetting Seasonal Patterns
Many businesses have seasonal revenue dips (summer, December) or expense spikes (Q1 taxes, annual renewals). Account for these patterns.
Not Updating Regularly
A forecast from 3 months ago is nearly useless. Circumstances change. Update your forecast at least monthly.
Single Scenario Only
Your base case isn't guaranteed. Model downside scenarios to understand your risk and plan accordingly.
Key Takeaways
- 1A cash flow forecast shows when you'll run out of cash—build one now
- 2Project cash collected, not revenue recognized—timing matters
- 3Build multiple scenarios: best, base, and worst case
- 4Update your forecast at least monthly to keep it useful
- 5Be conservative on revenue—most founders overestimate growth
Need Help With Financial Planning?
Eagle Rock CFO builds cash flow forecasts, financial models, and reporting dashboards for seed and Series A startups. Get the financial visibility you need to make confident decisions.
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