cash-flow-forecast

name	cash-flow-forecast
description	Projects monthly cash flow for 3-12 months from revenue and expense inputs with scenario modeling and runway calculations. Use when a user needs to plan spending, evaluate whether they can afford a hire or investment, or wants to understand when they'll run out of (or accumulate) cash.

Cash Flow Forecast

When to Use This Skill

• Planning a major business expense (hire, equipment, marketing spend)
• Evaluating whether revenue supports current burn rate
• Preparing financial projections for a loan or investor
• Seasonal business planning (anticipating slow months)
• Answering "how long can I sustain this?" or "when do I break even?"

DISCLAIMER: This tool provides estimates for planning purposes. It is not financial advice. Consult a qualified accountant or financial advisor for formal financial planning.

Core Principle

CASH FLOW IS NOT PROFIT. A profitable business can run out of cash. This forecast tracks when money actually enters and leaves your bank account.

Workflow

Step 1: Gather Financial Inputs

Ask the user:

1. Current cash on hand (bank balance)
2. Monthly revenue sources and amounts (be specific: retainer clients, product sales, subscriptions)
3. Monthly fixed expenses (rent, software, subscriptions, salaries)
4. Monthly variable expenses (ads, materials, contractors)
5. Any upcoming one-time expenses or revenue (equipment purchase, tax payment, contract signing)
6. Forecast period (default: 6 months)

Minimum needed: questions 1, 2, and 3.

Step 2: Build the Forecast Table

Create a month-by-month table:

	Month 1	Month 2	Month 3	Month 4	Month 5	Month 6
Starting Cash
Revenue Line 1
Revenue Line 2
Total Revenue
Fixed Expense 1
Fixed Expense 2
Variable Expenses
One-Time Expenses
Total Expenses
Net Cash Flow
Ending Cash

Step 3: Calculate Key Metrics

• Monthly Burn Rate: Average total expenses per month
• Revenue Coverage Ratio: Total revenue / total expenses (above 1.0 = cash positive)
• Cash Runway: Starting cash / (monthly expenses - monthly revenue) = months until $0
• Break-Even Month: First month where cumulative cash flow turns positive
• Lowest Cash Point: The month with the lowest ending cash balance (danger zone)

Step 4: Scenario Modeling

Build three scenarios:

Scenario	Revenue Assumption	Expense Assumption
Conservative	80% of projected revenue	110% of projected expenses
Base Case	100% of projected	100% of projected
Optimistic	120% of projected revenue	95% of projected expenses

Highlight the conservative scenario as the planning baseline.

Step 5: Recommendations

Based on the forecast, provide:

• Cash danger zones (months where ending cash drops below 1 month of expenses)
• Specific recommendations (cut expenses, accelerate revenue, build reserve)
• Decision support for the user's original question

Examples

Example 1: Freelance Designer Considering a Full-Time Hire

Inputs:

• Cash on hand: $28,000
• Revenue: 3 retainer clients × $3,500/mo = $10,500/mo + sporadic project work ~$2,000/mo
• Fixed expenses: $4,200/mo (rent $1,500, software $400, insurance $300, utilities $200, accounting $150, misc $1,650)
• Proposed hire: $4,500/mo (salary + taxes + benefits)
• Forecast: 6 months

Forecast (Base Case):

	Jan	Feb	Mar	Apr	May	Jun
Starting Cash	$28,000	$29,800	$31,600	$33,400	$35,200	$37,000
Retainer Revenue	$10,500	$10,500	$10,500	$10,500	$10,500	$10,500
Project Revenue	$2,000	$2,000	$2,000	$2,000	$2,000	$2,000
Total Revenue	$12,500	$12,500	$12,500	$12,500	$12,500	$12,500
Current Expenses	-$4,200	-$4,200	-$4,200	-$4,200	-$4,200	-$4,200
New Hire	-$4,500	-$4,500	-$4,500	-$4,500	-$4,500	-$4,500
Contractor (replaced)	$0	$0	$0	$0	$0	$0
Total Expenses	-$8,700	-$8,700	-$8,700	-$8,700	-$8,700	-$8,700
Net Cash Flow	$3,800	$3,800	$3,800	$3,800	$3,800	$3,800
Ending Cash	$31,800	$35,600	$39,400	$43,200	$47,000	$50,800

Conservative Scenario (lose 1 retainer client in month 3):

	Jan	Feb	Mar	Apr	May	Jun
Ending Cash	$31,800	$35,600	$35,900	$31,200	$26,500	$21,800

Key Metrics:

• Burn rate with hire: $8,700/mo
• Revenue coverage: 1.44x (base) / 1.03x (conservative)
• Cash runway (conservative, from month 3): 10.2 months
• Lowest cash point: $21,800 (month 6, conservative)

Recommendation: The hire is financially viable. Even in the conservative scenario (losing a client), you maintain $21,800+ cash through month 6 — that's 2.5 months of runway. Proceed with the hire, but set a trigger: if cash drops below $15,000, freeze non-essential spending.

Example 2: E-commerce Store Seasonal Planning

Inputs:

• Cash on hand: $12,000
• Revenue: $8,000/mo average, but seasonal (Nov-Dec: $18,000, Jan-Feb: $4,000)
• Fixed expenses: $3,800/mo
• Variable (COGS): 40% of revenue
• Q4 inventory buy: $8,000 in September

Key Finding: Cash drops to $1,400 in October (after inventory buy, before holiday sales). Recommendation: secure a $5,000 line of credit before September or pre-sell holiday bundles in August.

Recovery & Fallbacks

• User doesn't know exact numbers: Use ranges. "Revenue is probably $8K-$12K/mo" → model at $8K (conservative).
• Revenue is highly variable: Use the lowest 3-month average as the baseline, not the overall average.
• User has no financial records: Start with bank statements. Total deposits = revenue, total debits = expenses. It's rough but usable.
• Forecast shows negative runway: Don't panic the user. Present options: cut specific expenses, accelerate a revenue initiative, or bridge with savings/credit.

Constraints

• ALWAYS include the financial disclaimer
• NEVER present forecasts as guarantees — they are estimates based on assumptions
• Always show assumptions beneath every projection
• Use conservative scenario as the planning baseline
• Flag any month where ending cash drops below 1 month of expenses
• Round to whole dollars — false precision ($10,437.83) implies accuracy that doesn't exist

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