Cash Flow Forecasting When You’re Self-Employed

Being your own boss comes with many perks. You work on your own terms, get to choose when and where you spend your time, and you work towards building your own dream rather than someone else’s. Being solely responsible for your income can be overwhelming, but cash flow forecasting can help you feel more in control of your self-employed income.

What is cash flow forecasting?

A cash flow forecast is a way of predicting how much cash flow will be available to your business in the future. By looking at your projected income and expenses, you can get a clear picture of how much your business needs to earn to be profitable, and whether you can afford to take on new staff members or make purchases for your business. 

Why use cash flow forecasting?

Cash flow forecasting helps you plan for the future. By modeling out predicted profits and losses, you can make better decisions about how your business runs. 

How to create a cash flow forecast

Cash flow forecasting is all about the difference between your income and expenses. Here’s a simple way of creating a cash flow forecast:

  • Step 1: Calculate your regular expenses, by totaling up everything you pay on a regular basis, and an estimate of any ad-hoc expenses. It helps to look back over previous months to see how much you spent in order to get an accurate figure.
  • Step 2: Look back at how much your business has made in revenue over the past 6-12 months, and take an average of what that looks like month-on-month.
  • Step 3: Plot out your predicted income and expenses for the upcoming period (e.g. 3, 6 or 12 months) and measure how profitable your business can be. You can model out different scenarios to get a clearer picture of how extra income or expenses can impact your business.
  • Step 4: Review your forecasted cash flow and leverage that information to find ways to maximize your cash flow. As an example, if you run a product-based business, could you run a sale to increase revenue? If you’re a service-based business, could you increase your rate to make each hour more valuable? 

Cash flow forecasting with PocketSmith

With PocketSmith, you can make cash flow forecasting easier and more accurate than ever. By exporting a cash flow statement for your chosen period, you can clearly see your income, expenses and profit/loss at a glance. Plus, you can build out your own cash flow forecasts in minutes, up to 30 years in the future.

Things to consider when cash flow forecasting

It’s normal to encounter cash flow forecasting challenges in business, particularly if you’re new to this kind of planning. Some important things to consider to maximize accuracy and applicability include: 

  • Take seasonal fluctuations into account to avoid overestimating your income
  • Factor in ad-hoc, variable expenses as well as regular fixed expenses, to get a clearer picture of your profitability
  • Plan ahead for the purchase of equipment or tech, and factor this into your expenses in the month you expect to acquire them
  • Add on a buffer to your expenses to ensure you’re not caught short
  • Remember to include any loan repayments

Ready to take on the world of cash flow forecasting? Let PocketSmith help you out.

Emma Edwards Profile Image

Emma Edwards is a finance copywriter and blogger, on a mission to humanize the financial services industry by creating meaningful content that’s accessible and empowering. You’ll find her penning money tips at her blog, The Broke Generation, sharing financial insights on Instagram, or injecting life into content for her business clients. 

Related articles

Four Ways Forecasting Can Bring Good Fortune
PocketSmith has one of the most powerful and easiest to use cashflow forecasting engines on the market. In this article, we show you four ways you can use our nifty budget calendar to see into the future, and achieve your financial goals.
How to Manage Multiple Income Streams
Earning more than one stream of income? Welcome to the new normal! We've put together five tips that we hope will save you time and stress when managing multiple incomes.
How to Use Financial Forecasting to Level Up Your Life or Side Hustle
Financial forecasting can help you plan out your personal and business finances, and transform the way you manage your money. By looking at how your money, budget and income is likely to perform in the future, you can better plan for savings, investments and hitting your financial goals.