A cash flow plan estimates when money will enter and leave your business. Start with actual opening cash, add expected receipts and subtract expected payments for each month. Carry the closing balance into the next month, then check whether the money available for operations stays above your chosen buffer.
Start with cash you actually have
Choose a starting date and reconcile your opening cash to the balances included in the plan. If you separate tax reserves from operating cash, the opening amounts must add up to total cash. Do not count the same reserve in both categories.
For example: $8,000 operating cash + $2,000 reserved cash = $10,000 total cash. The full $10,000 is not automatically available for everyday spending.
Forecast receipts by expected payment month
Use the date you expect to receive money, rather than the date you issue an invoice. If a $3,000 invoice is sent in October but is expected to be paid in November, put the receipt in November. Split deposits and final payments when they arrive in different months.
Keep signed work and uncertain leads distinguishable in your planning notes. A useful downside scenario delays a major receipt or removes an unconfirmed project. Avoid treating every opportunity in a sales pipeline as certain cash.
List payments and withdrawals
Include recurring software, contractors, insurance, equipment and other payments relevant to your business. Add irregular annual payments in the month they fall due. Include owner withdrawals and financing cash movements where applicable, while distinguishing them from operating expenses in your records.
A cash plan and a profit calculation will therefore differ. A loan receipt increases cash without becoming sales revenue; repaying principal reduces cash without being an ordinary operating expense. The forecast's job is to show the cash movement clearly.
Work through one month
Here is a simplified example, with all figures in one currency:
- Opening operating cash: $8,000
- Customer receipts: +$6,000
- Operating payments: −$3,200
- Owner withdrawal: −$2,000
- Transfer into reserve: −$900
- Closing operating cash: $7,900
If the reserve started at $2,000 and no reserve payment is made, it closes at $2,900. Total closing cash is $7,900 + $2,900 = $10,800. Moving $900 between your own cash categories does not reduce total cash; it reduces the amount designated for operations.
The $900 is an example allocation, not a suggested tax amount or percentage.
Keep reserves and payments distinct
Setting money aside and paying a tax bill are different events. A reserve allocation changes how you label available money; an actual payment reduces total cash. When a payment uses the reserve, reduce that reserve. If the reserve cannot cover the payment, show the remaining cash need explicitly.
Use reserve amounts and payment dates appropriate to your jurisdiction and circumstances. A spreadsheet cannot determine official tax liability from a generic percentage. Confirm those assumptions with a qualified professional where needed.
Choose a buffer and test a delay
Your minimum operating buffer depends on commitments, receipt reliability and access to cash. Choose it deliberately rather than treating the reserve balance as spare spending money.
In the example, a one-month delay to $3,000 of receipts reduces closing operating cash from $7,900 to $4,900 if every other assumption remains unchanged. If your selected buffer is $5,000, the forecast flags a $100 gap. Consider payment timing, staged billing or discretionary spending before the month arrives.
Update the forecast, then extend it
Review near-term cash regularly and replace estimates with actual figures after each month. Carry the corrected closing balances forward. Keep a note of large timing changes so that errors do not silently compound across the year.
The Dovea Cash Flow & Tax Reserve Planner provides a 12-month Excel and Google Sheets workflow with separate operating and reserve balances. If you also need to set rates and review completed client work, compare the three-tool financial planning toolkit. Cash forecasting helps with timing; client profitability analysis helps explain whether the work generates an adequate return.
This is a planning example, not tax or accounting advice.