A simple cash-flow forecast for freelancers
A profitable freelance year can still contain a month where the account hits zero. Invoices land late, a tax payment falls due, a client pauses. None of it shows up in a profit figure, all of it shows up in cash. A forecast does not stop those things happening; it stops them being a surprise.
The whole thing on one page
Set up twelve columns, one per month, starting with this one. Then four rows:
- Opening balance. What is in the business account on the first of the month.
- Money in. Invoices you expect to be paid that month, not raised that month. If a client pays on 60-day terms, the cash goes in two columns to the right of the work.
- Money out. Fixed costs first (software, insurance, your own pay), then anything irregular you already know about: the tax payments, the laptop, the accountant.
- Closing balance. Opening plus in, minus out. It becomes next month’s opening.
That is the forecast. If any closing balance is below the amount you would be comfortable with, you have found the tight month, and you have found it early enough to do something.
What to do about a tight month
The options are ordinary and they work: invoice earlier, shorten payment terms for new clients, chase the late payers now rather than then, move a large purchase, or draw a little less in the months before. The forecast just tells you which lever to pull and how far in advance.
Keep it honest
Be pessimistic about money in and precise about money out. Assume the slow payer will be slow again. Put the tax payments in the month they are actually due, not the month you would like to pay them. If you are not sure when a client will pay, put it a month later than their terms say.
Update it once a month when the books close, which takes a few minutes because most of the columns just shift left. Ours is built into the monthly summary for clients on the growing-company plan, but a spreadsheet does the same job for a sole trader.
This is general information, not financial advice. Your own forecast should use your own figures and payment terms.
