Create a cash-flow budget: when might cash run short?

Use actual receipt and payment dates

Closing cash equals opening cash plus receipts minus payments. It becomes next month’s opening cash. Record an invoice receipt in its expected payment month, which can differ from the month in which revenue appears in the accounts.

Use the amounts actually paid, including VAT where it forms part of the payment. Include tax payments or refunds, investment, loans, principal repayments and owner drawings where relevant. Depreciation reduces profit but is not itself a bank payment.

Example: a shortfall in month two

In this fictional example, the business starts with €5,000. After three months it has €3,000 again, but it faces a €2,000 shortfall in between. Looking only at the final balance misses an important point. Receipts and payments are already expressed as cash movements.

Find the cause of the lowest balance

Identify which payments cause the dip and which receipts are uncertain. An agreed advance or a different delivery date can change timing, but only reflect arrangements that can actually be made. Record a desired cash buffer separately. The lowest calculated balance does not automatically determine how much a bank will lend.

Next, create a version in which a major customer pays one month later. Compare the lowest balance and the duration of the shortfall. Monthly rows may be too coarse for large payments: work through the critical period by week when necessary.