A profitable business can still run short of money. You may have a healthy order book, invoices issued and customers who genuinely intend to pay, yet find there is not enough in the bank for wages, suppliers or the next VAT payment. Knowing how to forecast cash flow gives you earlier warning, more control and more time to make sensible decisions.

For an owner-managed business, a cash flow forecast is not an exercise for the annual accounts file. It is a working plan for the bank account. It shows when cash is expected to arrive, when it is due to leave and whether the balance can support the commitments you have made.

What a cash flow forecast should show

A forecast starts with your opening bank balance and tracks expected cash movements over a chosen period, usually month by month. For businesses with tight margins, irregular income or a major upcoming payment, a weekly view can be more useful.

The basic calculation is straightforward:

Opening bank balance + cash received – cash paid out = closing bank balance

The value lies in the detail behind those figures. Sales are not cash until the customer pays. A supplier invoice is not necessarily an immediate payment, and a tax bill may not appear in your accounting records until it is close to the due date. Your forecast needs to reflect the timing of money, not simply the profit recorded in a period.

A good forecast should answer practical questions. Can you meet payroll in three weeks? Can the business afford to buy equipment without affecting working capital? What happens if a large customer pays 30 days late? Is there enough set aside for corporation tax, VAT or self-assessment payments? These are commercial decisions, not just bookkeeping questions.

How to forecast cash flow step by step

Start with the real bank balance

Use the cleared balance from your business bank account on the day you prepare the forecast. Do not rely solely on the balance shown in your accounting software if it includes payments that have not yet cleared. If you operate more than one account, include each one, along with accessible savings or reserve accounts earmarked for the business.

It is also sensible to separate restricted cash. Money held for payroll taxes, client funds or a specific purpose may technically sit in the bank, but it is not freely available for day-to-day spending.

Estimate when customers will actually pay

List invoices already raised first. Use the due date only if it matches your customers’ real payment behaviour. If a customer routinely pays 15 days after the due date, build that pattern into the forecast rather than assuming the best-case outcome.

Then add expected sales that have not yet been invoiced. Be measured here. A signed contract, recurring monthly work and a deposit due before work starts are stronger assumptions than a verbal enquiry or a proposal that has not been accepted.

For many growing businesses, it helps to group expected receipts into three levels: highly likely, likely and possible. The main forecast should normally use highly likely and likely income, with possible work treated as upside rather than money you need to meet essential costs. This avoids the common mistake of planning expenditure against sales that are not secured.

If you take card payments, direct debits or online payments, include the processor settlement delay and transaction fees. A sale made on the final day of the month may not reach your bank account until the following month.

Map every regular payment

Next, enter the payments you already know about. This includes rent, wages, subcontractors, loan repayments, insurance, software, utilities, stock, supplier invoices and director drawings or salary. Check bank statements and recent management accounts so that less frequent costs do not disappear from the plan.

Some costs arrive quarterly or annually. Professional subscriptions, vehicle insurance, annual licences and larger maintenance bills can create an unexpected dip if they are spread mentally across the year but paid in one month. Put them in the month they will leave the bank.

For variable costs, link the estimate to sales or activity where possible. A retailer may forecast stock purchases as a percentage of anticipated sales; a construction business may tie materials and subcontractor costs to confirmed jobs. The aim is not false precision. It is to make the assumption visible and update it as circumstances change.

Include VAT, tax and finance commitments

Tax is one of the most frequent gaps in a cash flow forecast. VAT may be collected from customers, but it is not income available to spend. Record the expected VAT payment in the correct quarter or month, allowing for the VAT scheme you use and the timing of submissions.

Limited companies should also provide for corporation tax. Depending on your accounting period and profit level, the payment date may fall months after the trading activity that created the liability. That delay can make cash look healthier than it really is. Sole traders and partners should plan for self-assessment payments on account, while directors need to consider personal tax implications of dividends and remuneration.

Include loan capital repayments as well as interest. Only the interest may affect profit, but both amounts affect cash. The same principle applies to asset purchases: equipment can be treated differently in the accounts, yet the full payment still leaves the bank when it is paid.

Allow for timing, not just totals

A forecast can look comfortable across a full year while hiding a serious shortfall in one month. That is why monthly, and sometimes weekly, timing matters.

Take a business expecting £30,000 of receipts and £30,000 of payments in April. If most customers pay in the final week but payroll and suppliers are due early in the month, the business still needs enough opening cash or agreed finance to bridge the gap. A forecast should expose that pinch point before it becomes an urgent call to the bank or a difficult conversation with a supplier.

Use the payment dates you expect, then build in sensible caution. It may be appropriate to assume that a new customer pays late until they establish a track record. Equally, if an established supplier offers a reliable 30-day credit term, there is no need to assume immediate payment unless that is your usual practice.

Test the forecast before relying on it

No forecast will predict every change. Its purpose is to support better decisions when the future is uncertain. Rather than producing one optimistic version and leaving it untouched, prepare a base case and test a more cautious scenario.

For example, reduce expected sales receipts by 10 to 20 per cent, delay one major invoice by a month, or include an unplanned repair bill. The right adjustment depends on your sector, customer concentration and trading history. A consultancy with recurring retainers faces different risks from a seasonal retailer or contractor dependent on a few large projects.

If the cautious version creates a shortfall, act while you have options. You might tighten credit control, request deposits or stage payments, defer a non-essential purchase, negotiate payment terms, reduce discretionary spending or arrange finance before the position becomes urgent. The forecast does not tell you that one answer is always right. It makes the trade-offs clear.

Keep it current and use it to manage the business

A cash flow forecast loses value quickly if it is only prepared for a funding application or at year end. Review it at least monthly, compare expected movements with the actual bank position and replace estimates with confirmed information. Where a material variance appears, ask why. A late debtor, lower margin, higher stock requirement or rising overhead can reveal an operational issue that deserves attention.

Your bookkeeping and accounting software can provide a useful starting point, particularly for unpaid invoices, supplier bills and recurring transactions. However, software cannot judge whether a prospective job will proceed, whether a customer is likely to pay late or whether a director plans to take funds from the company. That judgement still needs to come from the business owner, supported by up-to-date financial information.

At RK & Co, we see the best results when cash forecasting is connected to budgets, pricing, credit control and tax planning rather than treated as a standalone spreadsheet. A clear forecast can help you decide when to recruit, invest, take on a larger contract or hold back until the business has a stronger cash cushion.

The most useful forecast is not the one with the most complicated formulas. It is the one you trust enough to review regularly, challenge honestly and use before a cash decision has to be made.

A family home, a growing business and savings built over decades can create an inheritance tax position that is very different from the one you expect. Understanding how inheritance tax works early gives you more choice, rather than leaving difficult decisions to executors at an already stressful time.

Inheritance Tax (IHT) is a tax on the value of a person’s estate when they die. It can also apply to some lifetime gifts and certain trust arrangements. The headline rate is well known, but the real outcome depends on who inherits, what assets are held, gifts made during life and whether valuable allowances have been protected.

How inheritance tax works in the UK

An estate includes property, savings, investments, personal possessions and business interests, less debts such as a mortgage, loans and funeral expenses. Once the value has been established, the personal representatives or executors consider the available tax-free allowances and reliefs.

The standard nil-rate band is £325,000. Broadly, this means the first £325,000 of a taxable estate is charged at 0%. The value above that threshold is usually taxed at 40%.

For example, a single person with an estate worth £525,000, no qualifying reliefs and no gifts to account for may have £200,000 exposed to IHT. At 40%, the potential tax bill would be £80,000. This is a simplified example, but it shows why a modest rise in property or investment values can make planning relevant.

Not every estate pays Inheritance Tax. Transfers between spouses and civil partners are normally exempt, provided the recipient is UK-domiciled or the appropriate conditions are met. Gifts to qualifying charities are also generally exempt. Where at least 10% of the net estate is left to charity, the IHT rate on the remainder may reduce from 40% to 36%.

The residence nil-rate band

There may be an additional allowance of up to £175,000 where a home is left to direct descendants, such as children, stepchildren, adopted children or grandchildren. This is called the residence nil-rate band.

It is often described as a family home allowance, but the conditions matter. The property must have been a residence of the person who died at some point, and the inheritance must pass to qualifying direct descendants. It is not available simply because a property is owned.

For estates worth more than £2 million, this allowance is tapered away by £1 for every £2 above that level. That can create a sharp planning issue for business owners, landlords and families whose wealth is concentrated in property or shares.

Married couples and civil partners

Where the first spouse or civil partner leaves assets to the survivor, their unused nil-rate band can normally be transferred to the survivor’s estate. The same principle can apply to the residence nil-rate band.

This means a surviving spouse or civil partner may have up to £1 million of combined allowances available where the estate qualifies fully: two £325,000 nil-rate bands and two £175,000 residence nil-rate bands. It is not automatic in the sense that the executors must make the appropriate claim and retain the evidence needed to support it.

Unmarried couples do not receive the same spouse exemption or transferable allowances. For long-term partners who are not married or in a civil partnership, this is one of the most significant areas to review.

Gifts: why the seven-year rule is only part of the picture

Many people assume that any gift is free from IHT if they survive for seven years. That is broadly true for many larger outright gifts to individuals, known as potentially exempt transfers, but the rules are more detailed than that.

If a person dies within seven years of making a gift, its value may be brought back into the IHT calculation. Gifts made in the three years before death can be taxed at the full rate where tax is due. After three years, taper relief may reduce the tax payable on the gift itself. It does not reduce the value of the gift when working out how much of the nil-rate band has been used.

Some smaller gifts can be made without creating a future IHT charge. These include the annual exemption of £3,000, certain small gifts, wedding gifts within set limits, and regular gifts from surplus income. The last category is particularly useful but needs careful records. The gifts must form part of normal expenditure, come from income rather than capital, and leave the donor able to maintain their usual standard of living.

A common trap is giving away a home while continuing to live in it rent-free. This can be treated as a gift with reservation of benefit, meaning the property may still be counted in the donor’s estate. Giving assets away is not enough if control or benefit has not genuinely been given up.

Business assets can change the calculation

For owner-managed businesses, the most valuable asset may be the company rather than the family home. Shares in an unquoted trading company, or an interest in a qualifying business, may be eligible for Business Relief. In some cases this can reduce the taxable value by 100%; in others, relief may be limited or unavailable.

The detail matters. A business that mainly holds investments, cash or property may not qualify in the same way as an active trading business. Excess cash, group structures, shareholder agreements and the type of property held can all affect the outcome.

Business Relief should never be assumed from a set of accounts alone. It needs to be reviewed alongside the company’s activity, ownership and long-term plans. This is particularly relevant where a director is considering a sale, retirement, a management buyout or passing shares to children.

Planning starts with an accurate picture

Effective IHT planning is not about rushing to make gifts or placing assets into complex arrangements. It starts by understanding what is owned, how it is owned and what the family wants to achieve.

A useful review will usually consider your will, property ownership, pensions, life cover, company shares, investments and previous gifts. It should also look at practical issues: whether the right people could access funds to meet liabilities, whether executors understand the estate, and whether a surviving spouse would have enough income and security.

A will written years ago can become unsuitable after a house move, divorce, remarriage, business growth or the birth of grandchildren. Likewise, an arrangement that saves tax but leaves a spouse financially exposed is rarely good planning.

Pensions deserve separate attention. They have often sat outside the estate for IHT purposes, but tax rules and future policy can change. Nominations should be kept under review, particularly where pension savings form a material part of a family’s wealth.

When tax must be paid

Executors are responsible for reporting the estate and paying any IHT due. Tax is generally payable by the end of the sixth month after the month of death. Interest can arise if payment is late, even where probate has not yet been granted.

This can create a cashflow problem where wealth is tied up in a house, private company shares or investments that cannot be sold quickly. Instalment options may be available for some assets, including land and certain business interests, but the position should be considered early rather than after deadlines have passed.

For families in Greater Manchester with a business, rental properties or valuable homes, a regular inheritance tax review can turn an uncertain future liability into a manageable plan. RK & Co can help you assess the numbers, identify the relevant reliefs and make practical decisions that fit your family and business objectives.

The most useful time to discuss inheritance tax is while you still have the freedom to choose: before a sale, before a gift, before ill health, and before a will becomes an urgent document rather than a considered plan.

For many company directors, the Corporation Tax bill is not the difficult part – it is the timing. You may have completed a profitable year, paid suppliers and staff, invested in equipment, and then realise the tax payment is due before you have filed your Company Tax Return. Understanding how to pay corporation tax helps you protect cashflow, avoid unnecessary interest and keep your business plans on track.

Corporation Tax is paid by limited companies on their taxable profits. It is separate from VAT, PAYE and your personal Self Assessment tax. The amount due depends on your company’s adjusted taxable profit, available reliefs and the accounting period covered by the return.

When is Corporation Tax due?

For most UK limited companies, Corporation Tax must reach HMRC nine months and one day after the end of the accounting period.

If your year end is 31 March, for example, your payment deadline will usually be 1 January of the following year. Your Company Tax Return is not normally due until 12 months after the accounting period ends. That difference catches out many directors: the tax may need paying up to three months before the return is filed.

Your accounting period for Corporation Tax is often the same as your financial year in the statutory accounts, but it is not always identical. A new company can have a first accounting period longer than 12 months, which HMRC splits into two periods for Corporation Tax purposes. A change in year end can also create a shorter period. It is worth checking the dates rather than relying solely on your Companies House filing date.

HMRC charges late-payment interest from the deadline if the tax is not paid in full. Filing the return late can bring separate penalties, even where you have already made the payment. Treat these as two related but distinct obligations.

The rates that affect your bill

The main Corporation Tax rate is 25% for companies with profits above the upper threshold. Companies with profits of £50,000 or less may qualify for the 19% small profits rate. Marginal Relief can reduce the effective rate for profits between £50,000 and £250,000.

Those thresholds are reduced where there are associated companies, so a business owner with more than one company should not assume the full limits apply. Certain periods, groups and circumstances can also affect the calculation. Your accounts and tax computation should establish the final amount before payment is made.

How to pay corporation tax to HMRC

Once you know the amount due, the practical payment process is straightforward. You will need your company’s 17-character Corporation Tax payment reference. It is usually your 10-digit Unique Taxpayer Reference followed by the letter K. Use the reference exactly as shown on your HMRC correspondence so the payment is allocated to the right company and period.

HMRC offers several payment methods, including online or telephone banking, CHAPS, Bacs, Direct Debit and payment by debit card or corporate credit card. The method you choose should reflect how close you are to the deadline and how your business controls payments.

Online banking is often the most convenient option for owner-managed companies, provided you allow enough time for the bank to process the payment. CHAPS can be useful for a same-day transfer on a working day, although your bank may charge for it. Direct Debit can work well if you want a planned payment process, but it must be set up in advance. Do not leave a first Direct Debit arrangement until the final day.

Payment dates can move where a deadline falls on a weekend or bank holiday. HMRC must receive cleared funds by the due date, not simply see that you initiated the transaction. Build in at least a few working days where possible, particularly around Christmas, Easter and year-end holiday periods.

Keep the payment confirmation alongside your tax computation and final accounts. It gives you a clear audit trail and makes reconciliation easier when reviewing your bookkeeping or responding to an HMRC query.

Plan for the payment before the deadline arrives

Corporation Tax is based on profit, not on the balance sitting in your bank account at year end. A company can therefore be profitable on paper while short of available cash because customers have not paid, stock has been purchased or funds have been used for growth.

The most effective approach is to estimate the liability during the year, rather than waiting for the annual accounts. Regular management information gives you an early view of profitability and allows you to set money aside gradually. Some businesses transfer a monthly amount into a separate savings account, while others include the expected tax payment in a rolling cashflow forecast.

Neither approach is automatically right. A separate account can prevent tax money being spent accidentally, but it should not stop you meeting essential commitments or responding to a genuine opportunity. The key is visibility. If a tax payment will put pressure on working capital, you need to know months in advance, not when HMRC’s deadline is days away.

It is also sensible to review likely adjustments to accounting profit. Depreciation, for example, is not usually deductible for Corporation Tax, while capital allowances may be available on qualifying equipment. Entertaining, staff costs, pension contributions, bad debts and research and development expenditure can all require careful treatment. Good bookkeeping is not just about producing tidy year-end records – it gives you a more realistic tax forecast throughout the year.

Large companies and payment by instalments

Most small and medium-sized companies pay Corporation Tax nine months and one day after the year end. However, companies with taxable profits above £1.5 million may need to pay by quarterly instalments. The limit can be reduced for associated companies, and different rules can apply to very large companies.

Instalment payments begin much earlier in the accounting period, so they need active forecasting and advice. If your company is growing quickly, winning larger contracts or operating through a group structure, check whether these rules may soon apply. Waiting until the accounts are complete may be too late to manage the payment schedule properly.

Common mistakes directors can avoid

A frequent mistake is using the wrong reference, such as a VAT number or Companies House number. HMRC may still receive the money, but matching it to your Corporation Tax account can take time.

Another is assuming dividends are a company expense. Dividends are paid from post-tax profits and do not reduce your Corporation Tax bill. Director salaries, employer pension contributions and certain business expenses may affect taxable profit, but they must be correctly recorded, commercially justifiable and supported by evidence.

Directors also sometimes delay accounts preparation because they expect the tax bill to be high. This usually makes matters harder. Earlier information gives you more options: you may be able to manage cash, review capital expenditure, correct bookkeeping errors or consider legitimate tax planning before the accounting period closes. Once the year has ended, flexibility is often reduced.

Finally, do not confuse paying an estimated amount with completing the compliance process. If your final tax calculation changes, you may need to make a balancing payment or claim a repayment. Your Company Tax Return still needs to be filed accurately and on time, with statutory accounts submitted separately to Companies House where required.

What to do if you cannot pay in full

Do not ignore the deadline. If your company cannot pay its Corporation Tax in full, contact HMRC as early as possible to discuss whether a Time to Pay arrangement may be available. HMRC will expect a realistic explanation of the position, evidence that the business can meet future obligations and a proposal for affordable payments.

An arrangement is not guaranteed, and interest can continue to accrue. It is therefore better viewed as a way to manage a temporary difficulty than as routine business funding. Before agreeing to repayments, prepare a cashflow forecast that includes VAT, PAYE, supplier commitments, loan repayments and director drawings. A plan that overlooks other liabilities can create a second problem only weeks later.

If your business is under pressure, timely advice can make a meaningful difference. RK & Co helps company directors turn up-to-date accounts and forecasts into practical decisions, so tax deadlines support sensible planning rather than becoming a last-minute shock. Setting aside time to review profit, cash and tax before your year end can give you more confidence to invest, grow and pay HMRC when the bill falls due.