How to forecast cash for your next 12 months (investor-grade)

The forecast that decides whether you survive

Every founder dies the same death if they're not careful: not from a bad product, but from running out of cash on a Tuesday they didn't see coming. A cash flow forecast is the one document that stops that happening. It's also the document investors ask for first — because it tells them, in one sheet, whether you understand your own business or you're flying blind.

The good news: an investor-grade cash flow forecast is not an accounting exam. It's a month-by-month map of money landing in your bank account and money leaving it, projected forward so you can see the wall before you hit it. You can build a credible one in an afternoon. Let's do it properly.

What a cash flow forecast actually is

Strip away the jargon and it's three rows, repeated across twelve columns (one per month):

1. Cash in — money actually arriving in the bank: customer payments, grants, investment.
2. Cash out — money actually leaving: salaries, rent, software, contractors, VAT payments, everything.
3. Closing balance — what's left in the bank at the end of each month, which becomes next month's opening balance.

That's the whole machine. Opening balance, plus cash in, minus cash out, equals closing balance — carried forward, month after month, for twelve months.

The single most important word in that paragraph is cash. Not sales. Not profit. Cash. A forecast is about when money truly hits and leaves your bank account — which is often very different from when you make a sale or incur a cost. You can be profitable on paper and still run dry, which is exactly why the forecast exists. (See: Profit vs cash — why you can be profitable and still broke.)

Building it: cash out first (it's the honest bit)

Start with money going out, because at pre-seed it's the part you can actually predict. Most of your costs are boringly regular, and that's a gift.

List every recurring outflow, month by month:

• Salaries and your own drawings — usually the biggest line by far at an early-stage company.
• Contractors and freelancers — be honest about what you'll actually spend, not what you hope.
• Software and tools — the subscriptions add up faster than anyone expects.
• Rent, office, equipment.
• The lumpy, easy-to-forget ones — VAT payments (which land quarterly, not monthly), Corporation Tax, your accountant's fee, that annual insurance renewal.

That last group is where forecasts go wrong. A founder forecasts smooth monthly costs, then a £9,000 VAT bill lands in month four and the runway they thought they had evaporates. Put the lumpy payments in the exact months they fall, not as a tidy average. An investor will spot a forecast that's missing its VAT and tax payments instantly — and it undermines everything else on the sheet.

Then cash in (be conservative, and show your working)

Money coming in is harder to predict, and this is where founders lose credibility by being optimistic. The fix is simple: build revenue from assumptions you can defend, not from a hockey-stick line you drew with hope.

If you have customers, base it on what you actually know — current paying customers, your real conversion rate, how long customers actually take to pay (a sale in January that pays in March is March's cash, not January's). If you're pre-revenue, say so plainly and forecast the few things you can stand behind: a grant you've been awarded, the investment you're closing, early pilot revenue with named customers.

The rule that earns investor trust: every revenue number should trace back to an assumption you can say out loud. "We'll hit £40k MRR by month twelve" is a wish. "We add 8 customers a month at £400 each, here's why 8" is a forecast. Investors don't expect you to be right. They expect you to be reasoned — and to be honest about the difference.

Finding your runway and burn

Once the three rows are filled in for twelve months, your forecast hands you the two numbers investors care about most — for free.

Burn is how much cash you're losing each month (cash out minus cash in). Runway is how many months of cash you have left before the closing balance hits zero — your current bank balance divided by your monthly burn. Your forecast shows runway visually: it's the month where the closing-balance row crosses below zero. That month is your deadline. (For the full method, see: What is runway and how do I work out mine?)

This is why the forecast and your fundraise are the same conversation. Your runway tells you when you must raise; your forecast tells you how much — enough to reach the next milestone plus a buffer, and no more, because every extra pound you raise is dilution you didn't need. (See: Dilution — what happens to your ownership when you raise.)

A practical move that signals maturity: build a base case and a downside case. Same forecast, but the downside assumes revenue comes slower and a key cost runs higher. Investors love a founder who's already asked "what if this is harder than I hope?" — because it proves you won't be caught out, and it shows you know exactly which levers extend your runway.

What makes a forecast "investor-grade": plan vs actual

Here's the bit that separates a forecast that wins trust from one that quietly destroys it.

Anyone can build a forecast. What investors actually trust is a founder who goes back and compares the forecast to what really happened — month by month. This is plan vs actual: last month you planned to spend £22k and bring in £8k; you actually spent £25k and brought in £6k. The gap, and your explanation of it, is the single most credible thing you can show an investor.

Why it matters so much:

• A forecast on its own is a guess. A forecast next to actuals is evidence you steer by your numbers.
• The variances teach you. If you're always 20% over on costs, your next forecast gets sharper — and investors watch your forecasting improve, which is its own signal.
• It makes investor updates write themselves. "We were on plan except marketing ran £3k hot; here's why and here's the fix" is the calm, in-control update every investor wishes they got more often.

The founders who get blindsided by running out of cash are almost never the ones who built a forecast and checked it monthly. They're the ones who built a beautiful forecast once, filed it, and never looked again — so reality drifted away from the plan in the dark.

The short version

A cash flow forecast is a twelve-month, month-by-month map of cash landing and leaving your bank account. Build cash out first (it's predictable — and put the lumpy VAT and tax payments in the right months), then cash in from assumptions you can defend out loud. The forecast hands you your burn and your runway for free, which tells you when and how much to raise. But what makes it investor-grade is checking it against reality every month — plan vs actual — because that's the difference between a guess and proof that you steer by your numbers.

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Raising in the next year? In Ledgers, your forecast is built from your live bank feed — your runway and burn update automatically, plan-vs-actual is always current, and your monthly investor update writes itself from real numbers, not a spreadsheet you'd have to dust off. See your runway and forecast live → start free.

First, the number it all points to: What is runway and how do I work out mine? →

And the trap a cash forecast saves you from: Profit vs cash — why you can be profitable and still broke →

Frequently asked questions

What is a startup cash flow forecast?

It's a month-by-month projection of the cash arriving in and leaving your bank account, usually over 12 months. It tracks your opening balance, cash in, cash out and closing balance, so you can see your runway and spot any month where you'd run short of cash.

How far ahead should a startup forecast cash?

Twelve months is the standard for fundraising — long enough to show your runway and the next milestone, short enough to stay credible. Build a base case and a more cautious downside case so you can show investors you've thought about what happens if things go slower.

What's the difference between a cash flow forecast and a P&L forecast?

A P&L forecast tracks profit — sales and costs as they're earned and incurred. A cash flow forecast tracks actual cash in the bank, which can be very different because of payment timing (a sale invoiced in January might not be paid until March). The cash flow forecast is what tells you whether you'll run out of money.

What is plan vs actual and why do investors care?

Plan vs actual means comparing what you forecast against what really happened each month. Investors trust it because it proves you steer by your numbers rather than guessing — and your explanation of any variance is one of the most credible things you can show them.

See your numbers without learning accounting

Ledgers does the bookkeeping — bank feeds, VAT, year-end — and keeps your accountant in the loop. Free for pre-revenue founders.

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