How can I build a realistic 12-month cash flow forecast with quarterly taxes?

[HannahQH]

I’m trying to build a more reliable 12-month cash flow forecast for my small service business, but I keep getting tripped up by how to realistically project my quarterly tax payments. I’m never sure if I should base them on last year’s profit or try to estimate the current year’s, and the timing of those outflows makes my monthly net cash look way off.

[Eric63]

I found that basing quarterly payments on last year’s profit was off when revenue shifted. I switched to projecting the current year’s obligations using year-to-date earnings and then smoothing those payments across the year, with a base and a small buffer.

[GaryJ]

I tried both methods, last year's profit and current-year estimates, and still felt the monthly net cash looked off because the timing of when I actually get paid from clients never lined up with the quarter boundaries.

[Kenneth_M]

Is the real issue that the problem isn't the math but the lag between invoicing and cash in?

[NoraA]

I did a quick test: I set aside a monthly reserve equal to roughly one twelfth of the expected annual obligation and watched the variance for three months; it helped a bit but still wasn't perfect.