How to Create a Cash Flow Projection

by Craig Anthony

2 min read

If you don’t have cash in your account, you can’t pay your employees, put change in your cash registers, or handle other expenses. Working capital is critical for small businesses, and cash flow projections can be an important tool for ensuring you always have enough cash on hand.

Time Period

Start by identifying the time period you want to cover. You can make projections for a month, a quarter, or a year or longer. However, if you want to focus on a year or a similar long time span, you should also do projections for smaller chunks of time within that large time period. That allows you to refine your projections as time passes, helping to make your overall projection more accurate.

Outgoing Expenses

Next, you should look at the cash you know is going to flow out. Make a note of regular expenses, such as rent, utilities, loan repayments, and similar costs. Then, estimate fluctuating expenses, such as payroll and the cost of goods sold – you can adjust these projections later when you know the exact expenses you’ve incurred. Note one-time expenses you anticipate making over the time period, such as equity payments or buying an asset.

Cash Inflows

Once you’ve outlined all the outgoing expenses, you need to list all cash that flows in. Start with guaranteed inflows, such as grants, royalties, GST rebates, and tax refunds. If you receive rent or subscription fees, you should also include those payments. Estimate how much sales revenue you expect to receive.

Setting Up the Cash Flow Projection

Ideally, you should create a cash flow statement that is similar to a cheque register. For example, if you are making a cash flow statement for a month-long period, you should start with the projected opening account balance on the first of the month, note each outgoing or incoming expense on the day it is likely to occur, and track how this affects your balance over time.

To explain, imagine you start with $1,000 cash on hand at the beginning of the month. You anticipate $2,000 in guaranteed income to arrive on the 2nd. This increases your projected cash balance to $3,000. On the 5th, you must pay $1,400 in bills, lowering your cash on hand to $1,600.

You can do this on a simple sheet of paper with four columns: incoming cash, outgoing cash, balance, and description of transaction. Alternatively, you may use a spreadsheet, or you can make the process easier with an app such as Float. When you sync Float with your accounting software, you can compare your cash flow projections with your actual cash flow.

Adjusting Projected Numbers

At the end of the time period, look over your cash flow projection, and make adjustments based on actual sales and expenses. Then, use the adjusted cash flow statement when making future cash flow statements. Ultimately, these accounting statements help you identify times when cash is likely to be short so you can make plans to avoid or remedy those situations.

References & Resources

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