How to build a twelve-month cash flow forecast (that IRD and lenders trust)

If Mr could give every New Zealand business owner one tool, it wouldn’t be a loan. It’d be a twelve-month cash flow forecast. It shows the pinch points months ahead, it answers half the questions a lender or IRD will ask, and it turns “I think we’ll be fine” into “here’s exactly when we’ll be tight and by how much”. Here’s how to build one in an afternoon.

Why cash, not profit?

A profitable business can still run out of money. Profit is about what you’ve earned; cash is about what’s in the bank today. The gap between them is made of:

• customers paying after you’ve done the work (debtor days);
• GST you’ve collected but not yet paid, then pay in a lump;
• provisional tax paid on fixed dates regardless of how this month went;
• loan repayments (only the interest is an expense; the principal is pure cash out);
• stock and equipment bought now and sold or used later.

A cash flow forecast captures all of it, month by month, on the date money actually moves.

Step 1: Set up the sheet

Twelve columns, one per month, starting with next month. Rows in three groups:

1. Cash in — sales receipts, other income, GST refunds, loan advances, owner contributions.
2. Cash out — everything that leaves the bank.
3. The sums — net movement for the month, opening balance, closing balance.

The closing balance of each month becomes the opening balance of the next.

Step 2: Estimate cash in, conservatively

Start from last year’s bank statements — they’re the truest record of when money actually arrived. For each month:

• take last year’s deposits as a base;
• adjust for known changes: new contracts, lost customers, price rises;
• shift income for when customers actually pay, not when you invoice;
• shave a little off anything uncertain.

Mr’s rule: income is a guess, costs are a promise. Be cautious with the first and thorough with the second.

Step 3: List every cash outgoing

Group	Items	When it leaves the bank
People	Net wages, employer deductions (PAYE, KiwiSaver, ESCT, student loan, child support)	Wages on paydays; deductions by the 20th of the next month (or twice monthly for large employers)
Tax	GST, provisional tax, end-of-year tax	GST on the 28th after each period (15 January and 7 May exceptions); provisional tax on your option’s dates
Premises	Rent, power, rates, insurance	As billed
Suppliers	Stock, materials, subcontractors	On their payment terms, not the order date
Finance	Loan and lease repayments	On their schedules
Other	Software, phone, vehicles, ACC levies, professional fees	As billed
Owner	Drawings or salary	When you take them

The tax due dates tool gives you every GST, employer deduction and provisional tax date for the next 12 months, based on how you file — copy them straight into the sheet.

Step 4: Put GST in properly

GST trips up a lot of forecasts. Two simple approaches:

• Simple: forecast receipts and payments including GST, then add a “GST payment” line in each due month equal to the GST on that period’s sales less GST on its costs.
• Simpler: look at last year’s GST returns for the same periods, adjust for growth, and use those amounts.

Remember the due dates: the 28th of the month after the period ends, except the period ending 31 March (due 7 May) and the period ending 30 November (due 15 January).

Step 5: Add provisional tax on its real dates

For a 31 March balance date using the standard or estimation option, instalments are due on 28 August, 15 January and 7 May — or 28 October and 7 May if you file GST six-monthly. Ratio-option users pay six instalments, including 28 June, 28 October and 28 February. Don’t spread provisional tax evenly across the year in your forecast; put it where it lands. That’s what creates the real pinch points.

If you’re in your first or second year of profit, read the second-year provisional tax shock before you finish this step.

Step 6: Run the numbers and find the low point

Once every row is filled:

1. Calculate net movement for each month (cash in minus cash out).
2. Add it to the opening balance to get the closing balance.
3. Find the lowest closing balance in the year. That’s your critical number.
4. Note which month it falls in and why.

For many New Zealand businesses, the low point lands in January (holiday shutdown plus 15 January tax) or May (the 7 May GST and provisional tax on top of a slowing autumn). See our Christmas shutdown cash plan if January is your problem.

Step 7: Decide what to do about the low point

If the low point is…	Consider
Comfortably positive	Great — set a minimum buffer and keep tracking monthly
Close to zero	Pull receipts forward, push discretionary costs back, build a buffer now
Negative, briefly	Short-term funding or an IRD arrangement for that period
Negative for months	A deeper look at pricing, costs or structure — plus possibly a longer-term loan

If funding is part of the answer, your forecast becomes the centrepiece of the conversation. Lenders love an owner who can say “we’re short by this much in these months, for this reason, and here’s how it’s repaid”. If that’s you, tell us about it — there’s no credit check to ask.

Using your forecast with IRD

If you’re arranging to pay overdue tax, IRD may ask business customers for a twelve-month cash flow forecast on form IR591. Your sheet makes that easy. Make sure it:

• includes current tax obligations as well as the proposed arrangement payments;
• shows realistic, not hopeful, income;
• matches what IRD can see in your returns.

Read what’s an instalment arrangement and will a lender care? for how arrangements work.

Keep it alive

A forecast you build once and never open again is a nice piece of art. A forecast you update monthly is a management tool. Each month:

• replace last month’s forecast figures with actuals;
• adjust the coming months based on what you’ve learned;
• roll forward one month, so you always see twelve ahead;
• check the low point hasn’t moved.

An illustrative example

This example is invented.

A Rotorua tourism operator builds her first forecast in September. It shows a healthy summer, but a closing balance dipping below zero in late May and June — after the 7 May GST and provisional tax, with visitor numbers dropping. She has eight months’ notice. She sets aside a slice of every summer week into a tax account, negotiates a quieter-season rent arrangement with her landlord, and arranges a small standby facility in March, which she ends up barely using. Without the forecast, she’d have found out in May.

Common forecasting mistakes

Mr sees the same handful of errors in first forecasts:

• Using invoice dates instead of payment dates. Customers who pay in 45 days push your income later than you think.
• Spreading tax evenly. GST and provisional tax land in lumps on specific dates; that’s what creates the low points.
• Forgetting annual costs. Insurance renewals, ACC levies, software subscriptions and registrations.
• Leaving out the owner. If you draw money from the business, it’s a cash outgoing.
• Ignoring loan principal. Your profit and loss shows interest; your bank account sees the whole repayment.
• Assuming every month is average. Use last year’s actual monthly pattern, including the quiet ones.
• Building it once. A forecast is a living document — update it monthly.

Fix those seven and your forecast will be more accurate than most.

Get a second opinion on your numbers

If your forecast shows a gap and you’d like to know what funding could fit it, tell us the size, timing and cause. Asking won’t put a mark on your credit file, your enquiry isn’t spread across a list of lenders, and a real specialist will look at your numbers with you.

Please share your forecast’s low point and the month it falls in when you fill in the form — it’s the fastest way for us to suggest the right shape of help. See if your business qualifies.