A simple 12-month cash flow forecast for freelancers

Profit tells you whether the business works. Cash flow tells you whether you can pay rent next month. For irregular freelance income you need both, and the second one fits in a grid of twelve columns.

The layout

Months across the top (January to December), and six rows down the side:

1. Opening cash: what is in the bank at the start of the month.
2. Expected income: money you expect to receive that month (not invoice).
3. Expected expenses: business costs you expect to pay that month.
4. Tax set-aside: money you move out of reach so it isn't spent.
5. Net movement: income minus expenses minus set-aside.
6. Closing cash: opening cash plus net movement.

The formulas

With the rows above in rows 5 to 10 and January in column B:

Opening cash (Feb)  =B10            ' last month's closing cash
Tax set-aside       =MAX(0, B6-B7) * $B$1   ' B1 holds your chosen rate
Net movement        =B6-B7-B8
Closing cash        =B5+B9

Only the opening cash of the first month is typed in. Every other opening balance links to the previous month's closing balance, so one change flows through all twelve months. The set-aside rate is whatever figure you have decided on with your own tax rules in mind; keep it in one cell so you can change it once.

Forecast income conservatively

Freelance income is lumpy, so optimism hurts. Three habits help:

• Count a project as income in the month you expect the payment, which is usually weeks after the work. If a client pays 30 days after invoicing, shift it a month.
• For uncertain work, enter only part of it, or none until it's signed.
• Use a retainer or repeat client's actual payment dates as your anchors and treat everything else as upside.

Two numbers worth calculating

Lowest closing cash and which month it falls in: =MIN(B10:M10) and =INDEX(B4:M4, MATCH(MIN(B10:M10), B10:M10, 0)). If it's negative, you've found the month to fix before it arrives.

Months of runway: opening cash divided by average monthly expenses, =B5/AVERAGE(B7:M7). It ignores future income on purpose; it answers "how long could I keep going if no new work came in?". Many freelancers aim to keep a few months of runway, but the right number depends on your situation.

Update it monthly

At the end of each month, replace that month's forecast with what actually happened and glance at the months ahead. A forecast you never update is just a guess from January.

General information about using spreadsheets, not financial, tax or accounting advice. Any rate you use for setting money aside is your own assumption; this article does not tell you what you owe.