Paper profit and money in the bank are two different things, and businesses don't go out of business for lack of profit, but for lack of cash on the wrong day. The solution is a cash flow forecast, a simple table showing month by month, 12 months ahead, how much money comes in, how much goes out, and how much remains. The goal is one: no surprises.
For each month, write down three things: the cash balance at the start of the month, expected incoming cash, and expected outgoing cash. The end-of-month balance becomes the starting balance for the next month. Revenues are the actual collections you expect, not the invoices you issue, because the March invoice is often collected in May. Outflows are wages with contributions, rent, suppliers, VAT, loan installments, and any other liabilities, each in the month they are actually paid. This table does not require absolute accuracy. It requires honesty with yourself and updating it every month.
The true power of forecasting lies in the long-term horizons, those that are known today. The annual profit tax return is filed by March 31, so March involves an expense that many businesses forget until February. Financial statements are filed with the QKB by July 31, and a delay incurs an unnecessary fine. VAT for businesses in the scheme is declared and paid periodically, month by month, so in the table it appears as a regular line item rather than a surprise. You can find the rates, thresholds, and exact dates on our tax pages. If you plan to distribute dividends, their tax is also included in the table for the relevant month. When these dates are set out in January, none of them comes as a surprise.
A small wholesale business closes December with 800,000 LEK in accounts. The owner builds the 12-month table and sees this view for March. The expected opening balance at the start of March is 650,000 LEK, accounts receivable are 1,400,000 LEK, normal expenses are 1,500,000 LEK, plus the annual profit tax liability that the economist has calculated at 400,000 LEK. March ends with a final balance of 150,000 LEK, very close to zero for a business that pays salaries on the 5th. Since he sees it in January and not on March 25, he has time to act calmly. He postpones a non-urgent goods purchase from February to April, saving 300,000 LEK, and shortens the collection period for his two largest clients. The new March starts with a balance of 450,000 LEK. The same situation, viewed two months earlier, went from a potential crisis to a minor planning intervention.
At the Resource Center you'll find the 12-month cash forecast template, with rows ready for the major time periods of the year and automatic month-to-month balance calculations. It's completed for the first time with your economist and refreshed every month in 15 minutes.
The forecast is built using the direct method—cash receipts and payments expected—not with adjustments to accounting profit, because the owner needs to see the bank account, not the balance sheet. For clients under liquidity stress, a 13-week rolling forecast—the crisis management standard—is used, with weekly refreshment. It is worth adding a sensitivity scenario: collections minus 10% and a one-month delay for the two largest clients, which tests whether the business survives reasonable pessimism. The target safety reserve for a small business is usually one to two months of fixed costs. The structural link is with the cash conversion cycle; each day shortened in the cycle shifts the entire forecast curve upward.
The budget shows whether the business is profitable; the cash flow forecast shows whether there's money on the right day. A business can be profitable on paper and out of cash in March. You need both, and they're built from the same figures.
Honest approximation is enough. A 10% error in an entry won't invalidate the table's value. What does invalidate it is the absence of a major output, which is why the tax deadlines are listed first.
If you want us to build your 12-month forecast together and keep it updated every month, see the packages at offer or write to us at Contact page.
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