Cash Flow Projections

Executed properly, a cash flow projection gives you a clear picture of what’s ahead in your payables and receivables, helping you make smarter business decisions while minimizing cash flow risk. By this point, you should have a pretty strong understanding of why accurate cash flow forecasts are so important to comprehend (and use). Use this information to edit and iterate on your cash flow projection, keeping your estimates as accurate as possible throughout the month. By updating your projections on a regular, ongoing basis, you can see where your assumptions were right or wrong. Before you jump in, let’s discuss a few helpful tips to make sure you create the most reliable and helpful forecasts possible. That means your business can have heavy cash outflows for various startup costs (loading up on inventory, for example) and still look profitable on paper, even though you have negative cash flow.

Typically, most businesses’ cash flow projections cover a 12-month period. However, your business can create a weekly, monthly, or semi-annual cash flow projection. If you want to predict your business’s cash flow, create a cash flow projection. A cash flow projection estimates the money you expect to flow in and out of your business, including all of your income and expenses. The problem with profit and loss statements or income statements (in terms of making estimates of future cash flow) is that they don’t fully represent cash in the bank.

Benefits of forecasting your business cash flow

Depending on the size and complexity of your business, you may want to delegate the responsibility of creating a cash flow forecast to an accountant. However, small businesses can save time and money with a simple cash flow projections template. A cash flow forecasting template allows you to determine your company’s net amount of cash to continue operating your business.

These pieces include things like material costs, labor costs, product costs, etc. If you’ve calculated your breakeven point, you can pull most of this information from there as well. This transfer occurs through accounts payable and accounts receivable. Accounts payable is money out, while accounts receivable is money in. If not, add any other revenue you expect to receive (e.g., rental income, interest) below sales revenue.

How to Create a Cash Flow Forecast

Bills and unexpected emergencies can drain your business’s cash balance and derail your business growth. That’s why it’s critical to know when to pivot and when to stay the course. Once that’s done, you can calculate your projected cash flow for next month or the next 12 months. To do this, carry the balance from this month’s projected cash flow to the next month, and repeat the steps above. Cash positioning is the practice of aggregating daily account balance and transaction information in a single place to ensure there are enough funds to cover daily operating needs.

  • Free cash flow is left over after a company pays for its operating expenses and CapEx.
  • Once your actual cash flows are recorded, you can adjust your strategy.
  • Add up all your estimated expenses for the coming month and record each of them as a line item.
  • That sale adds to the revenue in your profit and loss statement but doesn’t show up in your bank account until the customer pays you.
  • A cash budget differs from a cash flow statement in that it’s generally broken down into periods of less than a year.
  • And especially during a crisis, when things can fluctuate rapidly, you don’t want budgets and forecasts that you just ignore.
  • On the payables side of the equation, try to anticipate annual and quarterly bills and plan for an increased tax rate if the business is likely to reach a new tax level.

You get that money right away and can deposit it in your bank account.You might also send invoices to customers and then have to collect payment. When you do that, you keep track of the money you are owed in Accounts Receivable. When customers pay those invoices, that cash shows up on your cash flow forecast in the “Cash from Accounts Receivable” row.


In fact, studies reveal that 30% of business failures stem from running out of money. To avoid such a fate, by understanding and predicting the inflow and outflow of cash, businesses can make informed decisions, plan effectively, and steer clear of potential financial disasters. Operating activities refers to the primary revenue-generation activities of a business. The nature of the business determines the actual classification of any transaction as an operating, investing, or financing activity. Project cash flow analysis is a crucial component of project management. The process allows you to understand (and, to some degree, orchestrate) when you will have the cash you need to complete the various phases of a project.

It involves mapping out the expected cash inflows (receivables) from sales, investments, and financing activities and the anticipated cash outflows (payables) for expenses, investments, and debt repayments. However, financial projections in your business plan express in common financial Cash Flow Projections terms and formats how you expect the immediate future to play out the scenarios you created in the body of the plan. You can forecast financial statements such as balance sheets, income statements, and cash flow statements to project where you’ll be at some point in the future.