How to Use Xero for Cashflow Forecasting: A Plain-English Guide for NZ Businesses

If you’re already on Xero, you have cashflow forecasting tools sitting right inside your account and most business owners never use them. Not because they’re hard, but because nobody has ever shown them where to look or how to get started.

This guide changes that. We’ll walk you through Xero’s built-in cashflow and budget tools step by step, explain what each one does in plain English, and show you how to combine them into a forecasting process that actually helps you run your business better.

We’re a Xero Platinum Partner this is exactly what we do with clients every day.

Why Xero is a strong starting point for cashflow forecasting

One of the biggest advantages of Xero is that your financial data is already there invoices, bills, bank transactions, payroll. That means you’re not building a cashflow forecast from scratch on a spreadsheet; you’re working with live, reconciled numbers.

Xero has two main tools relevant to cashflow forecasting:

• Short-term cash flow – shows your projected cash position over the next 7 or 30 days based on outstanding invoices and bills
• Budget Manager – lets you build a 12-month budget and compare it against your actual income and expenses over time

Together, these give you both a short-term view (what’s happening this month) and a longer-term view (where are we tracking against our annual plan). Let’s look at each one.

Tool 1: Xero’s short-term cash flow

You’ll find this under Accounting → Reports → Short-term cash flow.

This tool gives you a real-time snapshot of your expected cash position over the next 7 or 30 days. It pulls in your unpaid invoices (money coming in) and outstanding bills (money going out) and plots them against your current bank balance.

What it’s useful for:

• Seeing whether you’ll have enough to cover wages or a supplier payment this week
• Identifying which invoices to chase up urgently
• Spotting if a big bill is coming due at a bad time
• Adding expected payment dates to overdue invoices to make projections more accurate

Tip: If you have overdue invoices from clients, update the expected payment date in Xero rather than leaving it at the original due date. This makes your short-term forecast significantly more accurate and gives you a truer picture of your cash position.

The short-term cash flow tool is great for day-to-day decisions but it only looks 30 days ahead. For proper cashflow planning, you need the Budget Manager.

Tool 2: Xero’s Budget Manager

This is the tool we use in our cashflow planning and forecasting service. You’ll find it under Accounting → Budget Manager.

Budget Manager lets you build a 12-month financial budget for your business projecting income and expenses month by month across the full year. Once your actuals start flowing through Xero, you can compare them directly against your budget to see where you’re tracking ahead, behind, or on plan.

This is the closest thing Xero has to a true 12-month cashflow forecast built into the software itself.

What you can do in Budget Manager:

• Set monthly income targets across different revenue streams
• Project your fixed and variable expenses month by month
• Account for seasonal variations higher income in summer, quieter months in winter
• Run a budget vs actuals comparison at any time to see how you’re tracking
• Identify variances early before they become problems

Step-by-step: setting up your cashflow forecast in Xero

Here’s the process we take clients through during our Budget Cashflow sessions.

Step 1

Reconcile your accounts first

Before you build a forecast, make sure your Xero is up to date and fully reconciled. Your forecast is only as accurate as the data behind it. If your books are behind, spend an hour getting current before you start.

Step 2

Open Budget Manager and create a new budget

Go to Accounting → Budget Manager → New Budget. Name it clearly for example “FY2026 Annual Budget”. Select the financial year you want to plan for and the account type (Profit & Loss is the right starting point for most businesses).

Step 3

Enter your income projections month by month

Work through each income account and enter realistic monthly figures. Use last year’s actuals as a starting point, then adjust for known changes new contracts, planned growth, seasonal shifts. Be conservative rather than optimistic.

Step 4

Enter your expenses month by month

Go through every expense account wages, rent, software subscriptions, insurance, marketing, professional fees. Don’t forget the irregular ones: vehicle maintenance, equipment, annual renewals. These are the expenses that tend to catch businesses off guard.

Step 5

Add your tax obligations

Build GST payments, provisional tax, and PAYE into the relevant months as expense line items. This is one of the most important steps and one that most business owners leave out of their budgets entirely.

Step 6

Review your monthly closing position

Once your income and expenses are in, look at the net result each month. Are there months where expenses significantly outpace income? Those are the months to plan for now not react to later.

Step 7

Compare budget vs actuals every month

This is where the real value kicks in. Run the Budget vs Actuals report in Xero each month when you reconcile. Look for variances income lower than expected, expenses higher than projected and investigate what’s behind them. Over time, your forecasts get more accurate and your financial decisions get sharper.

The goal isn’t a perfect forecast it’s a living document you update regularly. A forecast you review monthly is ten times more valuable than a perfect one you look at once a year.

What Xero’s built-in tools can’t do

Xero’s Budget Manager is a solid starting point, but it does have limitations worth knowing about:

• It’s profit-focused, not purely cash-focused. It shows income and expenses, but doesn’t automatically account for timing differences like a client who pays 60 days late, or a loan repayment that hits mid-month.
• No scenario modelling. You can’t easily run “what if we win this contract” or “what if one of our big clients leaves” scenarios without manually creating multiple budgets.
• No automated rolling forecast. You need to manually update it each month.

For most NZ small businesses, Xero’s Budget Manager is more than enough to get started. If you need more sophisticated modelling three-way forecasts, scenario planning, consolidations tools like Figured, Float, or Castaway integrate directly with Xero and take things further. We can advise on the right tool for your stage of business.

Getting the most out of Xero for cashflow: the honest truth

The tools are there. The data is there. What most business owners are missing is a structured process for using them and someone to walk through the numbers with them the first time.

That’s exactly what our cashflow planning and forecasting service is designed to do. In a focused 2–3 hour session, we build your 12-month budget in Xero together, show you how to read and update it yourself, and make sure you leave with a process you can actually maintain not just a one-off spreadsheet.

You’re already paying for Xero. Our Budget Cashflow service makes sure you’re actually getting value from it and from your finances as a whole.

→ Learn more about our cashflow planning and forecasting service

→ Book a free consultation with our team