> For the complete documentation index, see [llms.txt](https://smartbooks.gitbook.io/smartbooks-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://smartbooks.gitbook.io/smartbooks-docs/data-models/financial-planning/creating-a-cash-flow-forecast.md).

# Creating a Cash Flow Forecast

Smartbooks calculates the cash flow statement using the **indirect method**. This means you don't plan cash flows directly. Instead, you plan your Profit and Loss and Balance Sheet accounts, and the cash flow forecast is derived automatically from the movements between periods.

Once your planning model is set up correctly, every change in your P\&L or Balance Sheet plan immediately flows through to your cash flow forecast.

### How it works

The Cash Flow tab in the Financial Accounts section is structured around the indirect method: Profit and Loss results and Balance Sheet movements are used to calculate the cash flow. For historical data this happens automatically. For your forecast, the same logic applies to your planning data — as long as your planned Balance Sheet is consistent and closes correctly.

Two conditions must be met for the model to work:

1. **Your equity must carry the planned P\&L result.** The net result from your planned Profit and Loss needs to flow into the Balance Sheet through the profit reserves.
2. **Your liquid assets (cash) must be the balancing item.** All other Balance Sheet movements determine the change in cash, which is exactly what a cash flow forecast represents.

The following steps explain how to set this up.

### Step 1 – Plan your Profit and Loss

Set up your P\&L planning as usual: define the planning levels in the [Financial Accounts](https://smartbooks.gitbook.io/smartbooks-docs/data-models/financial-planning/defining-the-model) section and enter your budget or forecast through manual input, formulas, or metrics. See the [Financial Planning](https://smartbooks.gitbook.io/smartbooks-docs/data-models/financial-planning) section for details.

### Step 2 – Plan your Balance Sheet

Decide which Balance Sheet accounts you want to plan actively. Common examples:

* **Accounts receivable and accounts payable:** often driven by revenue and costs, for example through DSO and DPO metrics (see Refining the model below).
* **Loans:** plan the amortization schedule so the outstanding balance decreases over time.
* **Fixed assets:** plan investments and depreciation.

Accounts you don't plan actively can simply carry forward their last known value using `PreviousPeriod()`.

### Step 3 – Let equity carry the P\&L result

Set the **profit reserves** account (or the account where the current year result accumulates) to **Formula**, and use:

```
PreviousPeriod() + Account('SB_Profit_and_Loss')
```

This takes the previous period's balance and adds the planned net result of the current period, so your planned P\&L flows through your Balance Sheet.

### Step 4 – Make cash the balancing item

Set your **liquid assets** (often the entire cash subfolder) to **Formula**, and use:

```
PreviousPeriod() + Movement('Liabilities') - Movement('Current Assets') - Movement('Fixed Assets')
```

This calculates the change in cash from all other Balance Sheet movements: an increase in liabilities adds cash, while an increase in current or fixed assets consumes cash.

{% hint style="info" %} The names used in the formula (`Liabilities`, `Current Assets`, `Fixed Assets`) must match the subfolder names in your own Financial Accounts structure. Make sure the referenced subfolders together cover all Balance Sheet items except the liquid assets themselves. {% endhint %}

With these two formulas in place, your Balance Sheet always closes: equity reflects your planned result, and cash absorbs all remaining movements. The cash flow forecast now rolls out of your model automatically.

### Refining the model

You can make the forecast more realistic by planning specific Balance Sheet positions dynamically:

* **Accounts receivable / accounts payable:** use metrics to calculate a DSO or DPO and derive the planned balance from your planned revenue and costs. This way, working capital automatically moves along with your P\&L plan.
* **Loans:** let the balance decrease according to the repayment schedule.
* **VAT and other short-term positions:** derive them from the related P\&L accounts.

Attaching these rules through metrics keeps the assumptions (payment terms, repayment schedules) in one place, so the entire model recalculates when you adjust them. See the Metrics section for how to set this up.

### Viewing the cash flow forecast

To display the cash flow in a report, open the report configurator, edit a table card, and under **Advanced** set the data source to **Cash Flow**. Select your planning category as the column dimension to show the forecast, or combine actuals and plan to compare them.