Accounting reports record what has already happened: the income earned, costs incurred and cash moved through your ledger in a finished period. A cash flow forecast estimates what happens next to your bank balance. One is the record, the other is the plan, and a finance team needs both.
What accounting reports actually tell you
Your accounting reports describe the business as it stands in the ledger. The profit and loss account shows the income and costs recognised in a finished period. The balance sheet shows what the business owns and owes on a given date. The cash flow statement, the third of the set, explains how cash moved during the period, split into operating, investing and financing activities.
All three are backward-looking by design. That is not a weakness; it is their stated purpose. IAS 7, the international accounting standard behind the cash flow statement, describes its objective as requiring "information about the historical changes in cash and cash equivalents" of a business. The standard asks the statement to explain the period that has ended, not the one coming.
There is a quirk worth knowing if you run a UK company at this size. Under FRS 102, companies that qualify as small (from April 2025, meeting two of the following: turnover of £15 million or less, a balance sheet total of £7.5 million or less, and 50 or fewer employees) may take an exemption from presenting a statement of cash flows at all. Many businesses with revenue between £2.5 million and £10 million qualify comfortably. The one statutory report dedicated to cash may be a report you are never required to produce, which means the only cash flow document your business possesses may be the one your finance team chooses to build.
What a cash flow forecast actually tells you
A cash flow forecast estimates the cash coming into and going out of the business over a coming period, and the bank balance that results, week by week or month by month. No accounting standard defines it, because it is not a financial reporting document. The working definitions come from business guidance instead. The British Business Bank describes a forecast as predicting the cash going out of the business and coming back in over a specific period, using figures for when cash is actually in your bank account. UK government guidance makes the same point plainly: think about when customers pay their bills, not when you issue invoices.
Horizon and cadence follow the decision you are supporting. ICAEW's guidance for finance professionals recommends a rolling 13-week forecast, updated weekly, where cash needs close attention, and a rolling 12-month view for planning and conversations with lenders. Either way, the defining feature is the direction of travel: a forecast describes the period that has not happened yet.
Why your reports and your forecast disagree on the same day
The gap between the two comes from how accrual accounting works. Your ledger recognises revenue when it is earned and costs when they are incurred, whether or not any cash has moved. Cash arrives and leaves on its own schedule.
An illustration with round numbers. Your team completes £50,000 of work and invoices it on 1 June on 30-day terms. The June profit and loss shows £50,000 of revenue. The bank shows nothing new: until the customer pays, the balance sheet carries the £50,000 as a receivable, and if the customer pays late, the cash lands well into July. Meanwhile the VAT on that invoice is due to HMRC one calendar month and seven days after the quarter ends, whether or not the customer has paid, and payroll runs on its own rhythm regardless of either. June can be the most profitable month in the company's history and cash-negative at the same time.
The same mechanism runs in reverse. Take a deposit before starting work and cash rises with no profit recognised yet; the ledger holds the amount as a liability until the work is done. Profit is a claim; cash is a balance. The reports are not wrong when they disagree with the bank. They are answering a different question. If that gap is biting right now, we cover the mechanism in depth in our guide to how a profitable business runs out of cash.
Indirect and direct: why the two are built differently
The published cash flow statement is usually built by the indirect method: start from profit, then adjust for everything non-cash, such as depreciation and movements in receivables, payables and accruals, until you reach the cash movement. It explains. It answers the question "how did our profit become that cash figure?"
An operational forecast is built the other way, by the direct method: list expected receipts and expected payments, week by week, and run the balance forward. It decides. It answers "will the balance cover payroll on the 28th?" There is no reconciliation to profit because there is no profit to reconcile from; the future has no accruals yet.
The standards themselves lean towards the forward-looking view. IAS 7 permits both methods but says entities "are encouraged" to use the direct method because it "provides information which may be useful in estimating future cash flows". In practice, statutory reporting is overwhelmingly indirect, because the indirect statement falls out of the profit and loss and balance sheet already being prepared. ICAEW's forecasting guidance points finance teams the other way for operational work: use the direct method where possible, showing cash in and cash out.
Where your accounting software's built-in projections stop
If you run Xero or QuickBooks Online, you already have a short-range projection built in, and for many teams it is genuinely useful. Xero's short-term cash flow view projects your bank balance 7 or 30 days ahead on standard plans, using bank balances, invoices due and bills awaiting payment, and extends to 60 and 90 days with Analytics Plus on higher plans. Xero's own pages differ on the exact ceiling depending on where you look, so check what your plan shows. QuickBooks Online's Cash Flow Planner projects roughly the next 90 days from your bank history and open invoices and bills; its scenario entries deliberately never touch your books, and the planner is unavailable when multicurrency is switched on.
Notice what both tools have in common. They extend what is already recorded: invoices raised, bills received, patterns in the bank feed. That makes them strongest at the near end, over the next few weeks of cash management. What they are not built for is the work a forecast does beyond the ledger: trading you have not invoiced yet, a rolling 13-week discipline with variance tracking, scenarios tested side by side, or a view across more than one entity. The vendors say as much themselves; both point users towards dedicated forecasting apps for longer horizons and scenario work.
How reports and forecasts work together in a weekly routine
The relationship between the two is written into the accounting standard itself. IAS 7 notes that historical cash flow information "is often used as an indicator of the amount, timing and certainty of future cash flows" and is "useful in checking the accuracy of past assessments of future cash flows". That is variance analysis, described by the standard: your reports exist partly to feed your forecast, and partly to score it.
In practice the weekly cycle looks like this:
- Replace the weeks that have just finished with actual receipts and payments from the ledger.
- Compare actuals with what the forecast said, and decide whether each variance is timing (it will still happen, later), amount (it happened, smaller or larger), or assumption (the logic behind the line was wrong).
- Update the assumptions the variances have disproved: collection days, a supplier's terms, a recurring cost that has crept.
- Roll the window forward a week, so the horizon stays constant.
ACCA's small-business cash flow template is built around exactly this loop: a forecast sheet, an actuals sheet, and a comparison sheet it describes as where the real analysis work is done. A forecast that is never compared with the reports drifts. Reports that never feed a forecast only ever tell you about the past. If assembling the reporting side of that loop is itself eating your week, we have a separate guide to automating cash flow reporting.
The statistic everyone quotes about cash flow, and why we won't
You have probably read that 82% of businesses fail because of poor cash flow. We looked for the study. It is attributed to a U.S. Bank analysis from around 2005, but no publication, sample size or method has ever surfaced, the researcher's surname is spelled two different ways across the articles that cite it, and at least one republisher attributes it to "the Bureau of Statistics" instead. Nobody quoting the number can produce the study, so we will not use it.
The verifiable picture is serious enough without it. Research commissioned by the UK Government's Department for Business and Trade estimates that late payments cost the UK economy almost £11 billion a year, with more than 1.5 million businesses affected annually. Those are modelled estimates from a named study (London Economics, 2025), not folklore. The Commercial Payments Bill now before Parliament would cap standard payment terms at 60 days and make statutory interest on late payments mandatory; it is a Bill rather than law for now, but it shows how seriously the gap between doing the work and being paid for it is taken. A forecast is how a finance team manages that gap before it becomes a crisis. The reports are how it learns whether it managed it well.
How Float fits
Float is a cash flow forecasting layer that sits on top of the ledger you already keep. It connects to Xero and QuickBooks Online, syncs your invoices, bills and bank balances on a rolling 24-hour cycle, and turns them into a forward view of your cash: a rolling forecast that runs months and years ahead rather than weeks, expected income and costs you add for the trading you have not invoiced yet, and scenarios you can test side by side without touching your books. Support for Sage Intacct is in development, with a waitlist open.
Float does not produce your statutory reports, and is not meant to; your accounting software remains the system of record. The division of labour is the one this article has described: the ledger holds what happened, the forecast holds what happens next, and the daily sync keeps the two aligned. You can see how finance teams run that loop day to day at Float for finance teams.
Frequently asked questions
Is a cash flow forecast the same as a cash flow statement?
No. The cash flow statement is a financial report explaining how cash moved in a period that has ended, defined by accounting standards (IAS 7 internationally). A cash flow forecast is an operational estimate of the cash movements still to come. They share a subject, not a direction.
Why does my cash position look different in Xero vs reports?
Usually because the numbers are answering different questions. The balance in Xero reflects transactions entered and reconciled, the statement balance is what the bank says, and unreconciled items sit between the two; on top of that, reports run on an accrual basis include income and costs that no cash has yet arrived for or left against. Comparing a bank balance with an accrual-basis report will almost always show a gap.
Can a business be profitable and still run out of cash?
Yes, and it is one of the most common ways otherwise healthy businesses get into trouble. Profit is recognised when work is done, cash arrives when customers pay, and costs such as payroll, VAT and rent will not wait for the difference. We cover the mechanism in detail in our guide to how a profitable business runs out of cash.
Can my accounting software produce a cash flow forecast?
It can produce a short-range projection. Xero projects 7 or 30 days ahead as standard, and 60 to 90 days with Analytics Plus depending on plan, while QuickBooks Online's Cash Flow Planner covers roughly 90 days. Both are built from invoices, bills and bank history already recorded, which is also where they stop; longer horizons, scenario work and multi-entity views are the territory of dedicated forecasting tools.
What is the difference between direct and indirect cash flow?
The direct method lists gross cash receipts and gross cash payments. The indirect method starts from profit and adjusts for non-cash items until it reaches the cash movement. Statutory statements are usually prepared indirect; operational forecasts are built direct, and IAS 7 permits both while encouraging the direct method.
How far ahead can you forecast cash flow reliably?
The next few weeks are always firmer than the far end, because near-term cash is mostly invoices and bills that already exist. Beyond that, reliability depends on your own record: comparing each week's forecast against actuals tells you how far ahead your business can genuinely see. Treat any universal accuracy percentage with suspicion, as the figures in circulation trace back to vendor marketing rather than published research.
How often should a cash flow forecast be updated?
Weekly, if you run a rolling 13-week forecast, and monthly at minimum for a 12-month planning view. It should also be rebuilt when something material changes, such as winning or losing a large contract, or when variances show the original assumptions were wrong. A forecast nobody updates stops being a forecast and becomes a record of what you used to expect.
Is it safe to connect a forecasting tool to our accounting software?
Reputable forecasting tools connect through the accounting platform's official API with read-only access: they can see invoices, bills and balances, and cannot post, edit or delete anything in your books. Float's connections to Xero and QuickBooks Online work this way. Whoever manages IT security should still review the tool's documentation and control who on the team can view and edit forecasts.
How much does cash flow forecasting software cost?
Pricing is usually per company per month and varies with the size of the business and the number of entities. Rather than quote figures that date quickly, current plans and what each includes are on our pricing page.
