Chapter 19: Forecasting & Budgets

Tax year notice: This guide uses 2025/26 tax year figures (6 April 2025 -- 5 April 2026). Check gov.uk for the latest rates.

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Why forecast

Every business that runs out of cash saw it coming too late.

The bills don't stop because sales dipped. Rent is due on the first. Supplier invoices land whether you had a good month or not. If you only look at your bank balance today, you're driving by looking through the rear window.

A forecast looks forward. It takes what you know (recurring bills, expected invoices, seasonal patterns) and projects what your bank balance will look like next month, the month after, and three months from now. It won't be perfectly accurate -- no forecast is. But it will tell you whether you're heading for trouble early enough to do something about it.

How the forecast works

Blankitt builds your forecast from three sources:

Historical averages: Your actual income and spending over the past 3--12 months, broken down by category. If you've spent an average of 320/month on fuel for the last six months, the forecast assumes you'll spend roughly 320 next month too.

Trends: If your income has been growing 5% month-on-month, the forecast factors that in. If a particular expense category is creeping up, you'll see that reflected. Trends smooth out one-off spikes -- a single 500 repair bill won't skew next month's forecast.

Known commitments: Recurring transactions you've already set up -- rent, subscriptions, loan repayments, expected invoice payments. These aren't estimates. They're confirmed amounts on confirmed dates.

The forecast combines all three into a monthly projection. The further out you look, the less certain it becomes -- but even a rough forecast three months ahead is better than no forecast at all.

Reading the forecast

The forecast view shows:

Monthly projections: Expected income and expected expenses for each of the next 3--6 months, with a projected closing balance. Green means cash is growing. Red means it's shrinking.

Scenarios: Three lines on the chart:

• Optimistic -- income at the high end of recent history, expenses at the low end
• Expected -- the middle ground, based on averages and trends
• Pessimistic -- income drops, expenses stay the same or increase

The gap between optimistic and pessimistic is your uncertainty band. A narrow band means your finances are predictable. A wide band means there's a lot of variability -- and you should plan for the pessimistic case.

Risk alerts: The forecast flags specific risks:

• Cash balance projected to drop below a threshold you set
• A month where expenses are expected to exceed income
• Seasonal dips based on the same period last year

What runway means

Runway is the number of months until your cash hits zero, assuming current trends continue.

If you have 6,000 in the bank and you're burning 1,500/month more than you're earning, your runway is 4 months. That's not a crisis today, but it's a crisis in four months if nothing changes.

Runway is most useful for new businesses and seasonal businesses. It answers the question: "How long can I keep going if things don't improve?"

A healthy business has a long runway -- ideally indefinite, meaning income consistently exceeds expenses. If your runway is shortening, the forecast gives you time to act: cut costs, chase invoices, increase prices, or find new clients.

Setting budgets

A forecast tells you what's likely to happen. A budget tells you what you want to happen.

Set a monthly budget for each spending category: stock, fuel, marketing, tools, subscriptions. The budget is your spending target -- the amount you've decided is appropriate based on what you can afford and what the business needs.

Budgets work at any level:

• Personal: 200/month on eating out, 50/month on subscriptions
• Sole trader: 300/month on materials, 150/month on fuel
• Limited company: 2,000/month on wages, 500/month on marketing

The key is making the budget realistic. Set it too tight and you'll blow through it every month (and stop looking). Set it too loose and it's not doing its job.

Budget vs actual

Each month, Blankitt compares what you budgeted to what you actually spent. This is where the value appears.

Category	Budget	Actual	Variance
Stock	200	180	-20 (under)
Packaging	50	72	+22 (over)
Fuel	150	148	-2 (under)
Marketing	100	95	-5 (under)
Total	500	495	-5 (under)

The total looks fine -- 5 under budget. But the packaging line is 44% over. That's the kind of detail that matters. The total hides the problem. The line-by-line view reveals it.

Variance analysis

Variance is the difference between what you planned and what happened. It's expressed as an amount and a percentage:

• Favourable variance: You spent less than budgeted (or earned more). Good, but ask why -- did you genuinely save, or did you defer a necessary expense?
• Adverse variance: You spent more than budgeted (or earned less). Not automatically bad -- maybe an opportunity arose -- but it needs explaining.

The discipline is not in hitting every budget perfectly. It's in understanding why each variance occurred and deciding whether to adjust the budget or adjust the behaviour.

A pattern of adverse variance in the same category means either your budget is unrealistic or your spending is out of control. Either way, something needs to change.

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Real Scenario: Sam's seasonal business

Sam's vintage clothes business is seasonal. November and December are strong (pre-Christmas buying). January is quiet. February picks up slowly.

Sam's forecast, based on the past 12 months:

Month	Expected income	Expected expenses	Projected balance
October	1,800	1,200	4,100
November	3,200	1,800	5,500
December	4,100	2,200	7,400
January	800	1,100	7,100
February	1,000	1,100	7,000
March	1,600	1,200	7,400

The forecast shows cash dipping in January and February but staying healthy because November and December build a cushion. Sam knows to set aside money in October rather than spending the Christmas profits immediately.

Sam sets budgets for the year:

Category	Monthly budget
Stock	200
Packaging	50
Shipping	60
Phone (business %)	9
Home office	10

January actuals vs budget:

Category	Budget	Actual	Variance
Stock	200	180	-20 (under -- fewer sales, less stock needed)
Packaging	50	72	+22 (over -- switched supplier, prices up)
Shipping	60	35	-25 (under -- fewer orders)
Phone	9	9	0
Home office	10	10	0

The packaging overspend stands out. Sam investigates: the old supplier stopped carrying the tissue paper Sam uses, so Sam panic-bought from a more expensive one. Action: find a new regular supplier before February. Budget stays at 50 -- the solution is a better supplier, not a bigger budget.

Real Scenario: Steve's seasonal planning

Steve's gardening business is the mirror image of Sam's. Strong from March to September, quiet from October to February.

Steve's forecast:

Month	Expected income	Expected expenses	Projected balance
March	3,800	2,200	5,600
April	4,200	2,400	7,400
May	4,500	2,500	9,400
June	4,200	2,400	11,200
September	3,500	2,200	14,800
October	1,800	2,000	14,600
November	800	1,800	13,600
December	400	1,800	12,200
January	300	1,800	10,700
February	500	1,800	9,400

Steve's budgets:

Category	Monthly budget
Van maintenance	150
Tools	100
Fuel	300
Materials	400
Insurance	125

The forecast shows Steve can comfortably survive winter on summer earnings. But it also shows something interesting: if the income trend continues (up 8% year-on-year), Steve could afford a part-time helper from April. The optimistic scenario shows him clearing 5,000/month in peak season with help -- enough to justify the hire.

Steve uses the forecast to plan the timing: hire in April when income picks up, review in September, and let the helper go (or keep them) based on autumn bookings. Without the forecast, Steve would be guessing. With it, he's making a decision based on projected numbers.

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Checklist: Setting up forecasting and budgets

• Review at least 3 months of historical income and expenses (6--12 is better)
• Identify seasonal patterns -- which months are strong, which are weak?
• Set up recurring transactions for all known commitments (rent, subscriptions, loan repayments)
• Set a monthly budget for each spending category
• Review the forecast monthly -- are projections matching reality?
• Compare budget vs actual at the end of every month
• Investigate any variance above 20% -- is it a one-off or a trend?
• Check your runway -- how many months of expenses are covered by cash reserves?
• Adjust budgets quarterly based on what you've learned

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Jargon Buster

Term	Plain English
Forecast	A forward-looking projection of your income, expenses, and cash balance based on historical data, trends, and known commitments
Scenario	A version of the forecast based on different assumptions -- optimistic, expected, or pessimistic. Helps you plan for the best and worst cases
Runway	The number of months your cash will last at the current rate of spending. Longer is better. Infinite means income exceeds expenses
Burn rate	How fast you're spending money, typically measured monthly. If you spend 2,000/month more than you earn, your burn rate is 2,000/month
Variance	The difference between what you budgeted and what actually happened. Favourable (spent less) or adverse (spent more)
Budget	A spending plan that sets target amounts for each category. The benchmark you measure actual spending against