• Cash Flow Projection – The Co...

Cash Flow Projection – The Complete Guide (Template + Examples)

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Key Takeaways

  • Receive a step-by-step guide for developing a cash flow projection model.
  • Examine real-world examples that illustrate how cash flow projections function in practice.
  • Learn from industry executives as they discuss the six shortfalls in cash flow projections and offer strategies for overcoming them.

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Introduction

Cash flow projections represent the beating heart of a company’s financial rhythm. It’s not just a tool; it’s a compass that guides the CFO’s office in making critical decisions for growth, stability, and seizing opportunities—and at what rate.

When done right, finance teams are at their best, firing on all cylinders, and everyone wins. But finger-pointing and distrust can spread like wildfire when done wrong,” highlights Gerry Daly, AVP of Product Strategy – Treasury at HighRadius. “Cash flow optimization is a team sport; a top-notch projecting process can vault performance to new heights.”

This post will explain everything you need to know about cash flow projections — what it is, steps to project and forecast your cash flow, and best practices by industry experts.

What Is Cash Flow?

To grasp the concept of cash flow projections, we must first understand the essence of cash flow itself. Cash flow is all about the movement of money flowing in and out of business. It reflects the company’s financial health and liquidity, capturing the inflows and outflows of cash over a specific timeframe.

To truly grasp your business’s financial landscape, you must understand the stages of cash flow: operating, investing, and financing activities, and how to analyze and make sense of it.

How to Perform a Cash Flow Analysis (Template + Examples)

What Is Cash Flow Projection?

Cash flow projection is the process of estimating and predicting future cash inflows and outflows within a defined period—usually monthly, quarterly, or annually.

Think of cash flow projection (also referred to as a cash flow forecast) as a financial crystal ball that allows you to peek into the future of your business’s cash movements. 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.

It provides invaluable foresight into your business’s anticipated cash position, helping you plan for potential shortfalls, identify surplus funds, and make informed financial decisions.

Why Are Cash Flow Projections Important for Your Business?

Managing cash flow is a critical aspect of running a successful business. It can be the determining factor between flourishing and filing for Chapter 11 (aka bankruptcy ).

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.

Step-by-Step Guide to Creating a Cash Flow Projection

Step 1: choose the type of projection model.

  • Determine the appropriate projection model based on your business needs and planning horizon.
  • Consider the following factors when choosing a projection model:
  • Short-term Projections: Covering a period of 3-12 months, these projections are suitable for immediate planning and monitoring.
  • Long-term Projections: Extending beyond 12 months, these projections provide insights for strategic decision-making and future planning.
  • Combination Approach: Use a combination of short-term and long-term projections to address both immediate and long-range goals.

Step 2: Gather Historical Data and Sales Information

  • Want to determine where you’re going? Take a look at where you’ve already been. Collect relevant historical financial data, including cash inflows and outflows from previous periods.
  • Analyze sales information, considering seasonality, customer payment patterns, and market trends.

Pro Tip: Finance teams often utilize accounting software to ingest a range of historical and transactional data. Read on to discover the business use cases of implementing a treasury management solution for optimal cash flow management .

Step 3: Project Cash Inflows

  • Estimate cash inflows based on sales forecasts, considering factors such as payment terms and collection periods.
  • Utilize historical data and market insights to refine your projections.

Step 4: Estimate Cash Outflows

  • Identify and categorize various cash outflows components, such as operating expenses, loan repayments, supplier payments, and taxes.
  • Use historical data and expense forecasts to estimate the timing and amount of cash outflows.

Pro Tip: By referencing the cash flow statement, you can identify the sources of cash inflows and outflows. Click here to learn more about analyzing projected cash flow statement.

Step 5: Calculate Opening and Closing Balances

  • Calculate the opening balance for each period, which represents the cash available at the beginning of the period.
  • Opening Balance = Previous Closing Balance
  • Calculate the closing balance by considering the opening balance, cash inflows, and cash outflows for the period.
  • Closing Balance = Opening Balance + Cash Inflows – Cash Outflows

Step 6: Account for Timing and Payment Terms

  • Consider the timing of cash inflows and outflows to create a realistic cash flow timeline.
  • Account for payment terms with customers and suppliers to align projections with cash movements.

Step 7: Calculate Net Cash Flow

  • Calculate the net cash flow for each period, which represents the difference between cash inflows and cash outflows.
  • Net Cash Flow = Cash Inflows – Cash Outflows

Pro Tip: Calculating the net cash flow for each period is vital for your business as it gives you a clear picture of your future cash position. Think of it as your future cash flow calculation.

Step 8: Build Contingency Plans

  • Incorporate contingency plans to mitigate unexpected events impacting cash flow, such as economic downturns or late payments.
  • Create buffers in your projections to handle unforeseen circumstances.

Step 9: Implement Rolling Forecasts

  • Embrace a rolling forecast approach, where you regularly update and refine your cash flow projections based on actual performance and changing circumstances.
  • Rolling forecasts provide a dynamic view of your cash flow, allowing for adjustments and increased accuracy.

Cash Flow Projection Example

Let’s take a sneak peek into the cash flow projection of Pizza Planet, a hypothetical firm. In March, they begin with an opening balance of $50,000 . This snapshot will show us how their finances evolved during the next 4 months.

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Here are 5 key takeaways from the above cash flow projection analysis for Pizza Planet:

  • Upsurge in Cash Flow from Receivables Collection (April):
  • Successful efforts in collecting outstanding customer payments result in a significant increase in cash flow.
  • Indicates effective accounts receivable management and timely collection processes.
  • Buffer Cash Addition (May and June):
  • The company proactively adds buffer cash to prepare for potential financial disruptions.
  • Demonstrates a prudent approach to financial planning and readiness for unexpected challenges.
  • Spike in Cash Outflow from Loan Payment (May):
  • A noticeable cash outflow increase is attributed to borrowed funds’ repayment.
  • Suggests a commitment to honoring loan obligations and maintaining a healthy financial standing.
  • Manageable Negative Net Cash Flow (May and June):
  • A negative net cash flow during these months is offset by positive net cash flow in other months.
  • Indicates the ability to handle short-term cash fluctuations and maintain overall financial stability.
  • Consistent Closing Balance Growth:
  • The closing balance exhibits a consistent and upward trend over the projection period.
  • Reflects effective cash flow management, where inflows cover outflows and support the growth of the closing cash position.

Overall, the cash flow projection portrays a healthy cash flow for Pizza Planet, highlighting their ability to collect receivables, plan for contingencies, manage loan obligations, resilience in managing short-term fluctuations, and steadily improve their cash position over time.

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6 Common Pitfalls to Avoid When Creating Cash Flow Projections

At HighRadius, we recently turned our research engine toward cash flow forecasting to shed light on the sources of projection failures. One of our significant findings was that most companies opt for unrealistic projections models that don’t mirror the actual workings of your finance force.

Cash flow projections are only as strong as the numbers behind them. No one can be completely certain months in advance if literal or figurative storm clouds are waiting for them on the horizon. Defining a realistic cash flow projection for your company is crucial to achieving more accurate results. Don’t let optimism cloud your key assumptions. Stick to the most likely numbers for your projections.

A 5% variance is acceptable, but exceeding this threshold warrants a closer look at your key assumptions. Identify any logical flaws that may compromise accuracy. Take note of these pitfall insights we’ve gathered from finance executives who have shared their experiences:

  • Sales Estimates:
  • Avoid overly generous sales forecasts that can undermine projection accuracy.
  • Maintain a realistic approach to sales projections to ensure reliable cash flow projections.
  • Accounts Receivable: 
  • Reflect the payment behavior of your customers accurately in projections, especially if they tend to pay on the last possible day despite a 30-day payment schedule.
  • Adjust the projection cycle to align with the actual payment patterns.
  • Accounts Payable:
  • Factor in annual and quarterly bills on the payables side of your projections.
  • Consider potential changes in tax rates if your business is expected to reach a new tax level.
  • Cyclical Trends:
  • Account for seasonal fluctuations and cyclical trends specific to your industry.
  • Analyze historical data to identify patterns and adjust projections accordingly to reflect these variations.
  • Contingencies and Unexpected Events:
  • Incorporate contingencies in your projections to prepare for unforeseen circumstances such as economic downturns, natural disasters, or changes in market conditions.
  • Build buffers to mitigate the impact of unexpected events on your cash flow.

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  • Scenario Planning:
  • Failing to create multiple scenarios can leave you unprepared for different business outcomes.
  • Develop projections for best-case, worst-case, and moderate scenarios to assess the impact of various circumstances on cash flow.

By addressing these pitfalls and adopting best practices shared by finance executives, you can create more reliable and effective cash flow projections for your business. Stay proactive and keep your projections aligned with the realities of your industry and market conditions.

How Automation Helps in Projecting Cash Flow?

Building a cash flow projection chart is just the first step; the real power lies in the insights it can provide. Cash flow projection is crucial, but let’s face it – the traditional process is resource-consuming and hampers productivity. Finance teams have no choice but to abandon it and let it gather dust for the remainder of a month. 

However, there’s a solution: a cash flow projection automation tool. 

Professionals in Controlling or Treasury understand this need for automation, but it requires an investment of time and money. Building a compelling business case is straightforward, especially for companies prioritizing cash reporting, forecasting, and leveraging the output for day-to-day cash management and investment planning.

Consider the following 3 business use cases shared by finance executives, highlighting the benefits that outweigh the initial investment:

Scalability and Adaptability:

Forecasting cash flow in spreadsheets is manageable in the early stages, but as your business grows, it becomes challenging and resource-intensive. Manual cash flow management struggles to keep up with the increasing transactions and customer portfolios.

Many businesses rely on one-off solutions that only temporarily patch up cash flow processes without considering the implications for the future. Your business needs an automation tool that can effortlessly scale with your business, accommodating evolving needs.

Moreover, such dependable partners often offer customization options, allowing you to tailor the cash flow projections to your specific business requirements and adapt to changing market dynamics.

Time Savings:

Consider a simple example of the time and effort involved in compiling a 13-week cash flow projection for stakeholders every week. The process typically includes

  • Capture cash flow data from banking and accounting platforms and classify transactions.
  • Create short-term forecasts using payables and receivables data.
  • Model budget and other business plans for medium-term forecasts.
  • Collect data from various business units, subsidiaries, and inventory levels.
  • Consolidate the data into a single cash flow projection.
  • Perform variance and sensitivity analysis.
  • Compile reporting with commentary.

This process alone can consume many hours each week. Let’s assume it takes six hours for a single resource and another six hours for other contributors, totaling 12 hours per week or 624 hours per year.

How to Build a 13-Week Cash Forecast (Excel Template)

Imagine the added time spent on data conversations, information requests, and follow-ups. Cash reporting can quickly become an ongoing, never-ending process.

By implementing a cash flow projection automation tool, you can say goodbye to tedious manual tasks such as logging in, downloading data, manipulating spreadsheets, and compiling reports. Automating these processes saves your team countless hours, allowing them to focus on strategic initiatives and high-value activities.

Accuracy and Efficiency:

When it comes to cash flow monitoring and projection, accuracy is paramount for effective risk management. However, manual data handling introduces the risk of human error, which can have significant financial implications for businesses. These challenges may include:

  • Inaccurate financial decision-making
  • Cash flow uncertainty
  • Increased financial risks
  • Impaired stakeholder confidence
  • Wasted resources and time
  • Compliance and reporting challenges
  • Inconsistent data processing

Automating cash flow projections mitigates these risks by ensuring accurate and reliable results. An automation tool’s consistent data processing, real-time integration, error detection, and data validation capabilities instil greater accuracy, reliability, and confidence in the projected cash flow figures.

For example, Harris , a leading national mechanical contractor, transformed their cash flow management by adopting an automation tool. They achieved up to 85% accuracy across forecasts for 900+ projects and gained multiple 360-view projection horizons, from 1-Day to 6-Months, updated daily. This improvement in accuracy allowed the team to focus on higher-value tasks, driving better outcomes.

Read the full story

Cash Flow Projections with HighRadius

Managing cash flow projections today requires a host of tools to track data, usage, and historic revenue trends as seen above. Teams rely on spreadsheets, data warehouses, business intelligence tools, and analysts to compile and report the data.

HighRadius has consistently provided its customers with powerful AI and forecasting tools to support real-time visibility, historical tracking, and predictive insights so your teams can reap the benefits of automated cash flow management.

When your forecast is off, you can miss opportunities to invest in growth or undermine your credibility and investor confidence. An accurate forecast means predictable growth and increased shareholder confidence. 

At HighRadius, we would be delighted to discuss how we can bolster your business’s cash flow and treasury management needs. Request a demo today .

Learn more about the Future of Cash Flow Forecasting here .

Cash Flow Projection FAQs

How do you prepare a projected cash flow statement.

Steps to prepare a projected cash flow statement :

  • Analyze historical cash flows.
  • Estimate future sales and collections from customers.
  • Forecast expected payments to suppliers and vendors.
  • Consider changes in operating, investing, and financing activities.
  • Compile all these estimates into a projected cash flow statement for the desired period.

What is a 3-year projected cash flow statement?

A 3-year projected cash flow statement forecasts cash inflows and outflows for the next three years. It helps businesses assess their expected cash position and plan for future financial needs and opportunities.

What are the 4 key uses for a cash flow forecast?

  • Evaluate cash availability for operational expenses and investments.
  • Identify potential cash flow gaps or surpluses.
  • Support financial planning, budgeting, and decision-making.
  • Assist in securing financing or negotiating favorable terms with stakeholders.

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Related Resources

Three ways treasurers are using short-term forecasts for working capital management

10 Key Operating Cash Flow Metrics That Are Important to Track

10 Key Operating Cash Flow Metrics That Are Important to Track

6 Tips for effective corporate treasury management

6 Tips for effective corporate treasury management

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How to Create a Cash Flow Forecast

Male entrepreneur and restaurant owner sitting at a table while the location is closed. Working on a cash flow forecast to check on his business health.

10 min. read

Updated October 27, 2023

A good cash flow forecast might be the most important single piece of a business plan . All the strategy, tactics, and ongoing business activities mean nothing if there isn’t enough money to pay the bills.

That’s what a cash flow forecast is about—predicting your money needs in advance.

By cash, we mean money you can spend. Cash includes your checking account, savings, and liquid securities like money market funds. It is not just coins and bills.

Profits aren’t the same as cash

Profitable companies can run out of cash if they don’t know their numbers and manage their cash as well as their profits.

For example, your business can spend money that does not show up as an expense on your  profit and loss statement . Normal expenses reduce your profitability. But, certain spending, such as spending on inventory, debt repayment, new equipment, and purchasing assets reduces your cash but does not reduce your profitability. Because of this, your business can spend money and still look profitable.

On the sales side of things, your business can make a sale to a customer and send out an invoice, but not get paid right away. 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.

That’s why a cash flow forecast is so important. It helps you predict how much money you’ll have in the bank at the end of every month, regardless of how profitable your business is.

Learn more about the differences between cash and profits .

  • Two ways to create a cash flow forecast

There are several legitimate ways to do a cash flow forecast. The first method is called the “Direct Method” and the second is called the “Indirect Method.” Both methods are accurate and valid – you can choose the method that works best for you and is easiest for you to understand.

Unfortunately, experts can be annoying. Sometimes it seems like as soon as you use one method, somebody who is supposed to know business financials tells you you’ve done it wrong. Often that means that the expert doesn’t know enough to realize there is more than one way to do it.

  • The direct method for forecasting cash flow

The direct method for forecasting cash flow is less popular than the indirect method but it can be much easier to use.

The reason it’s less popular is that it can’t be easily created using standard reports from your business’s accounting software. But, if you’re creating a forecast – looking forward into the future – you aren’t relying on reports from your accounting system so it may be a better choice for you.

That downside of choosing the direct method is that some bankers, accountants, and investors may prefer to see the indirect method of a cash flow forecast. Don’t worry, though, the direct method is just as accurate. After we explain the direct method, we’ll explain the indirect method as well.

The direct method of forecasting cash flow relies on this simple overall formula:

Cash Flow = Cash Received – Cash Spent

And here’s what that cash flow forecast actually looks like:

sample cash flow with the direct method

Let’s start by estimating your cash received and then we’ll move on to the other sections of the cash flow forecast.

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Forecasting cash received

You receive cash from four primary sources: 

1. Sales of your products and services

In your cash flow forecast, this is the “Cash from Operations” section. When you sell your products and services, some customers will pay you immediately in cash – that’s the “cash sales” row in your spreadsheet. 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. The easiest way to think about forecasting this row is to think about what invoices will be paid by your customers and when.

2. New loans and investments in your business

You can also receive cash by getting a new loan from a bank or an investment. When you receive this kind of cash, you’ll track it in the rows for loans and investments. It’s worth keeping these two different types of cash in-flows separate from each other, mostly because loans need to be repaid while investments do not need to be repaid.

3. Sales of assets

Assets  are things that your business owns, such as vehicles, equipment, or property. When you sell an asset, you’ll usually receive cash from that sale and you track that cash in the “Sales of Assets” section of your cash flow forecast. For example, if you sell a truck that your company no longer needs, the proceeds from that sale would show up in your cash flow statement.

4. Other income and sales tax

Businesses can bring in money from other sources besides sales. For example, your business may make interest income from the money that it has in a savings account. Many businesses also collect taxes from their customers in the form of sales tax, VAT, HST/GST, and other tax mechanisms. Ideally, businesses record the collection of this money not in sales but in the cash flow forecast in a specific row. You want to do this because the tax money collected isn’t yours – it’s the government’s money and you’ll eventually end up paying it to them.

Forecasting cash spent

Similar to how you forecast the cash that you plan on receiving, you’ll forecast the cash that you plan on spending in a few categories:

1. Cash spending and paying your bills

You’ll want to forecast two types of cash spending related to your business’s operations: Cash Spending and Payment of Accounts Payable. Cash spending is money that you spend when you use petty cash or pay a bill immediately. But, there are also bills that you get and then pay later. You track these bills in  Accounts Payable . When you pay bills that you’ve been tracking in accounts payable, that cash payment will show up in your cash flow forecast as “payment of accounts payable”. When you’re forecasting this row, think about what bills you’ll pay and when you’ll pay them. In this section of your cash flow forecast, you exclude a few things: loan payments, asset purchases, dividends, and sales taxes.

2. Loan Payments

When you make forecast loan repayments, you’ll forecast the repayment of the principal in your cash flow forecast. The interest on the loan is tracked in the “non-operating expense” that we’ll discuss below.

3. Purchasing Assets

Similar to how you track sales of assets, you’ll forecast asset purchases in your cash flow forecast. Asset purchases are purchases of long-lasting, tangible things. Typically, vehicles, equipment, buildings, and other things that you could potentially re-sell in the future. Inventory is an asset that your business might purchase if you keep inventory on hand.

4. Other non-operating expenses and sales tax

Your business may have other expenses that are considered “non-operating” expenses. These are expenses that are not associated with running your business, such as investments that your business may make and interest that you pay on loans. In addition, you’ll forecast when you make tax payments and include those cash outflows in this section. 

Forecasting cash flow and cash balance

In the direct cash flow forecasting method, calculating cash flow is simple. Just subtract the amount of cash you plan on spending in a month from the amount of cash you plan on receiving. This will be your “net cash flow”. If the number is positive, you receive more cash than you spend. If the number is negative, you will be spending more cash than you receive. You can predict your cash balance by adding your net cash flow to your cash balance.

  • The indirect method

The indirect method of cash flow forecasting is as valid as the direct and reaches the same results.

Where the direct method looks at sources and uses of cash, the indirect method starts with net income and adds back items like depreciation that affect your profitability but don’t affect the cash balance.

The indirect method is more popular for creating cash flow statements about the past because you can easily get the data for the report from your accounting system.

You create the indirect cash flow statement by getting your Net Income (your profits) and then adding back in things that impact profit, but not cash. You also remove things like sales that have been booked, but not paid for yet.

Here’s what an indirect cash flow statement looks like:

projected cash flow with the indirect method

There are five primary categories of adjustments that you’ll make to your profit number to figure out your actual cash flow:

1. Adjust for the change in accounts receivable

Not all of your sales arrive as cash immediately. In the indirect cash flow forecast, you need to adjust your net profit to account for the fact that some of your sales didn’t end up as cash in the bank but instead increased your accounts receivable.

2. Adjust for the change in accounts payable

Very similar to how you make an adjustment for accounts receivable, you’ll need to account for expenses that you may have booked on your income statement but not actually paid yet. You’ll need to add these expenses back because you still have that cash on hand and haven’t paid the bills yet.

3. Taxes & Depreciation

On your income statement, taxes and depreciation work to reduce your profitability. On the cash flow statement, you’ll need to add back in depreciation because that number doesn’t actually impact your cash. Taxes are may have been calculated as an expense, but you may still have that money in your bank account. If that’s the case, you’ll need to add that back in as well to get an accurate forecast of your cash flow.

4. Loans and Investments

Similar to the direct method of cash flow, you’ll want to add in any additional cash you’ve received in the form of loans and investments. Make sure to also subtract any loan payments in this row.

5. Assets Purchased and Sold

If you bought or sold assets, you’ll need to add that into your cash flow calculations. This is, again, similar to the direct method of forecasting cash flow.

  • Cash flow is about management

Remember: You should be able to project cash flow using competently educated guesses based on an understanding of the flow in your business of sales, sales on credit, receivables, inventory, and payables.

These are useful projections. But, real management is minding the projections every month with plan versus actual analysis so you can catch changes in time to manage them. 

A good cash flow forecast will show you exactly when cash might run low in the future so you can prepare. It’s always better to plan ahead so you can set up a line of credit or secure additional investment so your business can survive periods of negative cash flow.

  • Cash Flow Forecasting Tools

Forecasting cash flow is unfortunately not a simple task to accomplish on your own. You can do it with spreadsheets, but the process can be complicated and it’s easy to make mistakes. 

Fortunately, there are affordable options that can make the process much easier – no spreadsheets or in-depth accounting knowledge required.

If you’re interested in checking out a cash flow forecasting tool, take a look at LivePlan for cash flow forecasting. It’s affordable and makes cash flow forecasting simple.

One of the key views in LivePlan is the cash flow assumptions view, as shown below, which highlights key cash flow assumptions in an interactive view that you can use to test the results of key assumptions:

Utilizing LivePlan allows you to actively change and adjust your forecasts with a simple dashboard.

With simple tools like this, you can explore different scenarios quickly to see how they will impact your future cash.

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Content Author: Tim Berry

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

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  • Cashflow management

User-friendly 3-year cash flow projection template for hassle-free forecasting

Arjun Ruparelia

A cash flow projection is a crucial tool for businesses to forecast their future financial health. With a 3-year cash flow projection template , a financial forecast can be made that estimates the anticipated inflows and outflows of cash for a business over a three-year period.

Estimating the inflows and outflows of cash over a 3-year timeline provides insights into the expected cash position of the company and helps in assessing its financial health and sustainability. Businesses can make informed decisions, plan for growth, and identify potential cash shortages based on such financial forecasts.

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What is a cash flow spreadsheet?

A cash flow spreadsheet, also called a cash flow statement projection, uses software like Excel or Google Sheets to track and analyse cash inflows and outflows.

The spreadsheet has columns for periods (e.g., months) and rows for cash flow categories. This tool allows input of actual and projected numbers, providing a visual representation of trends and aiding cash flow monitoring. It helps identify shortages/surpluses and informs financial decisions. Formulas automate calculations, generating summaries, charts, and graphs. Crucial for financial planning, budgeting, and forecasting, this spreadsheet streamlines the analysis and interpretation of cash flow data.

What is a projected 3-year cash flow?

A projected 3-year cash flow is a financial statement that outlines the anticipated cash inflows and outflows for a business over a specific three-year timeframe. It takes into account factors such as sales revenue, expenses, investments, loan repayments, and other sources. It uses cash to determine the net cash position at the end of each period.

Using a 3-year cash flow projection template, a projection is made, which serves as a tool for businesses to plan and make informed financial decisions.

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Purpose of a projected 3-year cash flow for businesses

The primary purpose of a projected 3-year cash flow is to provide a forward-looking view of a company's cash position. Estimating future cash flows helps businesses to :

Forecast financial health: A projected cash flow allows businesses to assess their financial health and solvency by identifying potential cash shortfalls or surpluses in advance.

Plan for growth: The forecasting helps in evaluating the financial feasibility of growth strategies, such as expanding operations, entering new markets, or investing in new products or services.

Identify financing needs: It enables businesses to determine if additional financings, such as loans or equity investments, will be required to cover anticipated cash deficits or support growth initiatives.

Make informed decisions: With a clear understanding of future cash flows, businesses can make informed decisions about expenditures, pricing strategies, cost management, and investment opportunities.

How to do yearly cash flow projection?

To create a yearly cash flow projection, follow these steps:

  • Set up spreadsheet: Organise categories, ensure systematic data entry and calculations.
  • Identify and estimate cash inflows: Consider sales revenue, receivables, interest income, etc.
  • Identify and estimate cash outflows: Categorise and estimate expenses like rent, payroll, and loans.
  • Calculate net cash flow: Subtract total outflows from inflows for surplus/deficit.
  • Calculate opening and closing balances: Consider the previous period's closing balance, and add net cash flow.
  • Review and adjust: Compare projection to actual data, and update for accuracy.
  • Monitor and update: Stay informed of changes in revenue, expenses, and market conditions.
  • Analyse and make decisions: Compare projections to goals, assess financial health, and make informed choices for cost management, investments, and strategies.

By forecasting future cash flows, businesses can proactively address potential financial challenges, plan for growth, and make informed decisions.

How to do triennial cash flow projections?

The process of creating a yearly cash flow projection is similar to that of a three-year cash flow projection. To create a projected 3-year cash flow, businesses gather historical financial data and use it as a basis for estimating future cash flows.

By analysing past trends and considering factors such as market conditions, sales forecasts, expense projections, and capital expenditure plans, businesses can build a comprehensive and realistic cash flow projection.

Step 1: Gather historical data

To begin, collect your company's historical financial statements, including balance sheets, income statements, and c ash flow statements for the past three years. This data will serve as a foundation for building your cash flow forecast.

Step 2: Identify cash inflows

List all potential sources of cash inflows , such as sales revenue, loans, investments, and other income streams. Analyse your historical data to determine the average amounts and timing of these inflows. Consider factors like seasonality, market trends, and any upcoming changes in your business operations that may affect cash inflows.

Step 3: Estimate cash outflows

Next, identify and categorise your expected cash outflows. This includes costs such as employee salaries, rent, utilities, raw materials, marketing expenses, loan repayments, and taxes. Again, refer to your historical financial data and account for any anticipated changes in costs, such as upcoming investments or cost-saving measures.

Step 4: Calculate net cash flow

By deducting the total cash outflows from the total cash inflows, you can calculate your net cash flow for each period. A cash flow positive indicates a surplus, while a negative value indicates a cash deficit. Be realistic and conservative in your estimations to ensure accuracy in your projection.

Step 5: Consider cash reserves and financing options

Assess your current cash reserves and determine if they are sufficient to cover any projected cash deficits .

Explore financing options such as bank loans, lines of credit, or equity investments to bridge the gap, if any. Incorporate these additional funds into your projection, including the associated costs and repayment terms.

Step 6: Review and refine

Regularly review and refine your cash flow projection as new information becomes available or circumstances change. Update your projection at least on a quarterly basis, comparing the actual results with your projections to identify any discrepancies or adjustments required.

What is a cash flow statement template?

A cash flow statement template is a tool used to present a business's cash inflows & outflows over a specific period. The template provides a structured format to organise and analyse cash flow information, allowing businesses and individuals to assess their liquidity, financial health, and cash management capabilities. It helps track the movement of cash throughout different activities, such as operating, investing, and financing activities.

A typical cash flow statement template consists of the following:

Opening Cash Balance: It represents the cash balance at the beginning of the period.

Cash Inflows: These include the sources of cash during the period, such as cash received from sales, interest income, dividends, or any other cash receipts.

Cash Outflows: These accounts for the cash payments made during the period, including expenses, purchases of assets, interest payments, taxes, and other operating costs.

Operating Activities: It summarises the cash flows related to the core operations of the business, such as revenue incurred from sales, payments made to suppliers, salaries & wages, and other operating expenses.

Investing Activities: It captures cash flows from investing activities, such as purchases or sales of property, plant, and equipment, investments in other businesses, or proceeds from the sale of investments.

Financing Activities: It records cash flows from financing activities, including proceeds from loans, issuance of stock, repayment of debt, or payment of dividends.

Net Cash Flow: It calculates the net increase or decrease in cash during the period by deducting the total cash outflows from the total cash inflows.

Closing Cash Balance: It shows the cash balance at the end of the period, which is calculated by adding the net cash flow to the opening cash balance.

Free 3-year Cash flow projection template for easy use

Benefits of using a 3-year cash flow projection template.

The benefits of using a 3-year cash flow projection template are:

  • Gain a comprehensive understanding of how future projects affect your business's financial performance.
  • Anticipate and plan for any potential cash shortfalls, allowing you to effectively strategise and manage your resources.
  • Proactively adjust and adapt to changes by utilising the insights from the 3-year projections.
  • Utilise the projections to outline and formulate growth and expansion strategies.
  • Perform variance analysis to compare and assess the variance between budgeted and actual cash flows.
  • Enhance your chances of securing bank loans and external financing by presenting a solid cash flow and forecast and demonstrating a strong repayment capacity.
  • Conduct accurate analysis of detailed scenarios, enabling you to make informed decisions.
  • Evaluate the impact of cost-saving measures on future cash flows and overall business valuations.

Creating a 3-year cash flow projection is an essential financial planning exercise for businesses. It is a valuable financial planning tool that helps businesses anticipate and manage their cash position.

By analysing historical data, estimating cash inflows and outflows, and considering potential financing options, you can gain valuable insights into your company's financial future.

Regularly updating and revising the projection based on actual results and changing circumstances allows businesses to stay on top of their financial situation and ensure long-term sustainability.

A 3-year cash flow forecast is crucial for long-term cash planning. How can you manage your cash flow better? Agicap is a cash management software that allows you to manage your business effectively. Try it out for free!

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business plan projected cash flow template

Cash Flow Forecasting: A How-To Guide (With Templates)

Janet Berry-Johnson, CPA

Reviewed by

May 30, 2023

This article is Tax Professional approved

Most small business owners just want their accounting done so they can focus on doing what they love. But tracking and forecasting cash flow—despite the time and effort required—is essential for starting, operating, and expanding a business.

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In 2018, CB Insights analyzed 101 failed startups and found that running out of cash was the second most common cause of failure, impacting 29% of businesses.

To avoid that fate, you need a cash flow forecast to help you estimate how much your cash outflows and inflows will affect your business.

What is a cash flow forecast?

A cash flow forecast (also known as a cash flow projection) is like a budget, but rather than estimating revenues and expenses, it estimates cash coming in and going out based on past business performance.

It’s not uncommon for a business to experience a cash shortage, even when sales are good. This usually happens when customers are allowed to pay after the product or service is delivered. In cases like these, a business owner must plan how they will cover costs before receiving the payment.

For example, say Hana Enterprises ships $50,000 worth of security products to customers in January, along with invoices that are due in 30 days. The company will have $50,000 of revenues for the month but won’t receive any cash until February. On paper, the business looks healthy, but all of its sales are tied up in the accounts receivable. Unless Hana Enterprises has plenty of cash on hand at the beginning of the month, they will have trouble covering their expenditures until they start receiving cash from clients.

With a cash flow forecast, you ignore sales on credit, accounts payable, and accrued expenses, instead focusing on the revenue you actually expect to collect and the expenses you actually expect to pay during a given period. You can also use the information provided on past cash flow statements to estimate your expenses for the period you’re forecasting for.

( If you just want to dive into cash flow forecasting, check out our free cash flow forecast template . )

The benefits of cash forecasting

Cash forecasting may sound like something boring that accountants do in big companies. Not so! It’s absolutely essential for every single business. Here’s why:

  • It helps you identify potential problems. Cash forecasting can help you predict the months in which you’re likely to experience a cash deficit and make necessary changes, like changing your pricing or adjusting your business plan.
  • It decreases the impact of cash shortages. When you can predict months in which you might experience a cash shortage, you can take steps to plan for them. You might save more in months where you have a surplus, step up your receivables collection efforts, or establish a line of credit with your bank to guarantee enough working capital to last the period.
  • It keeps suppliers and employees happy. Late payments and missing paychecks damage your reputation with suppliers and employees. When you can predict how much money you’ll have on hand in any given month, you can confirm that you’ll be able to meet your payroll obligations and pay suppliers by the due date.

Free cash flow forecast template

To make this a lot easier, we’ve created a business cash flow forecast template for Excel you can start using right now.

Access Template

The template has three essential pieces:

  • Beginning cash balance. This is the actual cash you expect to have on hand at the beginning of the month. It should include bank accounts, PayPal, Venmo, anything you use that’s currently holding just business funds. This information can be found on your balance sheet .
  • Sources of cash. These are all of your cash inflows each month. It can include cash sales, receivables collections, repayments from money you’ve loaned out, etc.
  • Uses of cash. This is every expense your business may incur, including payroll, payments to vendors, utilities, rent, loan payments, etc.

Here’s an example of a completed cash flow projection for a three month period:

Hana Enterprises, Inc.

Cash Flow Projection

January to March 2022

As you can see from the example above, Hana Enterprises expects to have a cash shortage in March. This results from a negative net cash flow (when more cash goes out than comes in). Knowing that information ahead of time, the company can take steps to prevent the shortage from occurring.

Hana Enterprises has several options to avoid this shortage in March. They might secure a line of credit from the bank, purchase fewer computers in February, negotiate longer payment terms from vendors, contact late-paying customers to speed up the collection of receivables, or take other cost-cutting measures to reduce their overhead expenses.

When you’re ready to get started, download your copy of the cash flow forecasting sheet here .

How Bench can help

Use Bench’s simple, intuitive platform to get all the information you need to project your cash flow. Each month, your transactions are automatically imported into our platform then categorized and reviewed by your personal bookkeeper. Bench helps you stay on top of your business’s top expenses so you can make informed budgeting decisions on the fly. Explore our platform with a free tour today .

Tips for improving your cash flow spreadsheet

Keep in mind: a cash flow forecast isn’t something you create once a year and never look at again. It’s a living, breathing business tool you should review and update on a monthly basis.

Though projections are helpful, they can’t perfectly predict the future. As the months pass, you should expect to see that your projections aren’t quite matching up with your actual results. That means it’s time to re-run your forecast to take into account these differences.

To improve the accuracy of your cash flow worksheet, consider the following:

  • Account for extra pay periods. If you pay employees bi-weekly, make sure your projection takes into account any months with three payrolls.
  • Remember annual payments. If certain insurance policies, subscriptions, or other expenses are paid annually rather than monthly, be sure to include them in your spreadsheet.
  • Remember estimated tax payments. For most calendar-year businesses, estimated tax payments are due on April 15th, June 15th, September 15th, and January 15th.
  • Don’t forget about savings. Try to allocate a portion of any cash surpluses to save for lean months.
  • Identify seasonal fluctuations. If you’re expecting a period of time with lower sales, make sure your forecast reflects this so you can have enough cash on hand to ramp up when business picks up again.
  • Don’t forecast too far out. Creating a rolling 12-month cash flow forecast that you update at the end of each month can help you identify issues before your business faces financial troubles, but don’t try to forecast more than 12 months out. The longer the reporting period you want to forecast, the more likely you’ll end up spending a lot of time creating a cash flow projection that doesn’t provide any useful information.

Your cash flow forecast is key to good cash flow management . Try to account for all cash sources and uses in your projection and maintain an emergency fund or backup plan to ensure you don’t get sidelined by slow-paying customers or unexpected expenses. When you do, this simple but valuable tool can help you keep an eye on cash and ensure you don’t compromise growth or put your business in jeopardy.

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How to create a cash flow projection (and why you should)

How to create a cash flow projection (and why you should)

For small business owners, managing cash flow (the money going into and out of your business) can be the difference between a thriving, successful company and filing for chapter 11 (aka bankruptcy).

In fact, one study showed that 30% of businesses fail because the owner runs out of money, and 60% of small business owners don’t feel knowledgeable about accounting or finance .

Understanding and predicting the flow of money in and out of your business, however, can help entrepreneurs make smarter decisions, plan ahead, and ultimately avoid an unnecessary cash flow crisis.

After all, knowing whether the next month will see a financial feast or famine can help you make better decisions about spending, saving, and investing in your business today.

One way to do this (without hiring a psychic)? Cash flow projection.

What is cash flow projection?

Cash flow projection is a breakdown of the money that is expected to come in and out of your business. This includes calculating your income and all of your expenses, which will give your business a clear idea on how much cash you'll be left with over a specific period of time.

If, for example, your cash flow projection suggests you’re going to have higher than normal costs and lower than normal earnings, it might not be the best time to buy that new piece of equipment.

On the other hand, if your cash flow projection suggests a surplus , it might be the right time to invest in the business.

Accounts receivable: The money you owe to vendors. Accounts payable: the money owed to your business.

Cash flow projections: The basics

In order to properly create a cash flow forecast, there are two concepts you should be aware of: accounts receivable (cash in) and accounts payable (cash out)

  • Accounts Receivable: refers to the money the business is expecting to collect, such as customer payments and deposits, but it also includes government grants , rebates, and even bank loans and lines of credit .
  • Accounts Payable: refers to the exact opposite—that is, anything the business will need to spend money on. That includes payroll , taxes, payments to suppliers and vendors, rent, overhead, inventory, as well as the owner’s compensation.

A cash flow projection (also referred to as a cash flow forecast) is essentially a breakdown of expected receivables versus payables. It ultimately provides an overview of how much cash the business is expected to have on hand at the end of each month .

Cash flow projections typically take less than an hour to produce but can go a long way in helping entrepreneurs identify and prepare for a potential shortfall, and make smarter choices when running their business.

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How to calculate your cash flow projection

Calculating your cash flow projection can seem intimidating at first, but once you start pulling together the necessary information, it isn’t so scary. Let’s walk through the first steps together.

1. Gather your documents

A screenshot of a Wave dashboard, showing documents needed for cash flow forecast. Includes reports on financial statements, taxes, and payroll.

This includes data about your business’s income and expenses.

2. Find your opening balance

Your opening balance is the balance in your bank at the start of a period. (So, if you’ve just started your business, this is zero.)

Your closing balance is the amount in your bank at the end of the period.

So the opening balance in one month should equal the closing balance at the end of the previous month. But more on this later.

3. Receivables (money received/cash in) for next period

This is an estimate of your anticipated sales (such as invoices you expect to be paid, or payments made on credit), revenue, grants , or loans and investments.

4. Payables (money spent/cash out) for next period

Again, this is an estimate. You should consider things like materials, rent, taxes, utilities, insurance, bills, marketing, payroll, and any one-time or seasonal expenses.

“Seasonality can have a material effect on the cash flow of your business,” Andy Bailey, CEO of Petra Coach, wrote in an article for Forbes . “A good cash flow forecast will anticipate when cash outlays and cash receipts are higher or lower so you can better manage the working capital needs of the company.”

5. Calculate cash flow

Now, let’s bring it all together using this cash flow formula : Cash Flow = Estimated Cash In – Estimated Cash Out

6. Add cash flow to opening balance

Now, you’ll want to add your cash flow to your opening balance, which will provide you with your closing balance.

Put it all together: How a cash flow projections look on paper

In practical terms, a cash flow projection chart includes 12 months laid out across the top of a graph, and a column on the left-hand side with a list of both payables and receivables.

Here are all the categories you’ll need for your cash flow projection:

  • Opening balance/operating cash
  • Money received (cash sales, payments, loans, investments, etc.
  • Money spent (expenses, materials, marketing, payroll and taxes, bills, loans, etc.)
  • Totals for money received and money spent, respectively
  • Total cash flow for the period
  • Closing balance

This column typically begins with “operating cash”/opening balance or unused earnings from the previous month. For example, if your cash flow projection for January suggests a surplus of $5,000, your operating cash for February is also $5,000.

An example of a cash flow projection.

Below operating cash, list all expected accounts receivable sources—such as sales, loans, or grants—leaving a space at the bottom to add them all up.

Next, list all potential payable items—such as payroll, overhead, taxes, and inventory—with another space to add their total below.

Once you have your numbers prepared, simply subtract the total funds that are likely to be spent from the cash that is likely to be received to arrive at the month’s cash flow projection.

Once you’ve calculated your monthly cash flow, take the final number and list it at the top of the next month’s column under operating cash, and repeat the process until you’ve got a forecast for the next 12 months.

After the end of each month, be sure to update the projection accordingly, and add another month to the projection.

If you’re a Wave customer and you prefer to use a ready-made chart to help you create your projection, you can pull your financial data from the Reports section of Wave and feed it into this cash flow forecast template .

Be realistic with your cash flow forecast

Cash flow projections are only as strong as the numbers behind them, so it’s important to be as realistic as possible when putting yours together.

For example, being overly generous in your sales estimates can compromise the accuracy of the projection.

Furthermore, if you provide customers with a 30-day payment schedule and a majority pay on the last possible day, make sure that cycle is accurately reflected in your projection.

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.

Those who pay their staff on a bi-weekly basis also need to keep an eye out for months with three payroll cycles, which typically occurs twice each year.

“Monthly or quarterly forecasts generally are more useful for stable, established businesses,” Bailey also wrote . “Weekly projections will be essential for companies scaling up or going through significant changes, such as a restructuring or merger/acquisition.”

“We like to encourage business owners—especially those who are starting out—to create a 13-week forecast for cash,” William Lieberman, the Managing Partner of The CEO’s Right Hand, told Forbes . “Each week, update the forecast based on what happened the previous week and extend the forecast window by one more week. In this way, you can keep a close watch on exactly what’s coming in and going out so you can be more proactive in addressing potential cash crunches.”

Those who want to be extra cautious with their projections can even include an “other expenses” category that designates a certain percentage of revenues for unanticipated costs. Putting aside some extra cash as a buffer is especially useful for those building their first projections, just in case they accidentally leave something out.

What now: Use your cash flow forecast to make data-driven decisions

Building the cash flow projection chart itself is an important exercise, but it’s only as useful as the insights you take away from it. Instead of hiding it away for the remainder of the month, consult your cash flow projection when making important financial decisions about your business.

If, for example, you anticipate a deficit in the months ahead, consider ways to cut your costs , increase sales, or save surpluses to help make up the difference. If you notice that payments often come in late, consider introducing a late penalty for bills past due.

You can also consult your cash flow projection to determine the best time to invest in new equipment, hire new staff, revise your pricing and payment terms, or when to offer promotions and discounts.

Have clients that regularly procrastinate on payments? Check out these tactics to get your clients to pay you faster .

Improving the accuracy of cash flow projections over time

Once you’re in the habit of creating cash flow projections, it becomes easier to improve their accuracy over time.

Comparing projections to actual results can help you improve the accuracy of your cash flow projections, and help identify longer-term patterns and cycles. Seasonal changes in revenue, patterns that contribute to late payments, and opportunities to cut costs will all become more apparent with each new cash flow projection.

While all these benefits won’t come all at once, entrepreneurs can use their cash flow projection to become better operators and better decision makers with each passing month.

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Made for small business owners, not accountants.

business plan projected cash flow template

The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.

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Cash flow forecasting template

Cash flow forecasting template

A well-designed cash flow forecasting template is invaluable. With this resource, finance teams can track and manage a business’s key cash flow categories.

However, there’s no one-size-fits-all template. Every finance team has different business objectives that should shape the report.

Download our free cash flow forecast template below. We’ll show you how to customise and use your own cash flow forecast template right now in this article. When we’re through, you’ll know what the template should include and how you can use it to improve your forecasting.

Download your free cash flow forecast template [Excel]

Table of contents:

  • What is a cash flow forecasting template?
  • Why is a cash flow forecasting template important?
  • Daily cash forecasting
  • Monthly cash forecasting
  • Yearly cash forecasting
  • Choose your cash forecast template time horizon
  • CashAnalytics makes cash forecasting easier than building from scratch or using a template

What is a cash forecasting template?

A forecasting template (also known as a cash forecasting model ) is a blueprint that finance teams use for cash flow projection. Typically, the document sets out the key dimensions of a forecast model — the time horizon, time-period granularity, and cash flow categories.

The template sets out the key dimensions of a forecast model – the time horizon, the time-period granularity and the cash flow categories that will be forecasted and reported on”

In the image above, forecasting template columns reflect the reporting frequency of your forecast within a specific time period. Additionally, rows in the template present cash outflows and inflows. Typically, you’ll group all cash inflows as receipts and outgoing cash as payments or expenditures.

The two types of cash flow data are:

  • Actual data. In the graphic above, actual data is displayed in the column furthest to the left.
  • Forecast data. In the graphic above, forecast data is displayed in the columns on the right.

The cash flow data in a forecast template is determined by what your firm’s leadership wants to see in reports — like dividends, intercompany payments, taxes, or more.

Why Is a Cash Flow Forecasting Template Important?

Instead of building out a forecasting model from scratch, use a cash forecasting template. This resource outlines which cash flow categories to track, so your forecast model is comprehensive.

Use the insights from your cash flow template to make informed cash-planning decisions. Based on your firm’s closing balance, for instance, you can determine creditworthiness or mobilise available cash for hiring more people.

How to Customise Your Cash Flow Projection Template

Earlier, we provided a downloadable cash forecasting template. To tailor the template to your exact business needs, you’ll need to choose a reporting granularity, time horizon, and how much actual data you want in your forecast.

Set Your Forecast Report’s Granularity

Your report’s granularity — the time intervals when you complete the reporting — depends on your forecast objectives.

If you’re focused on short-term liquidity planning, a daily reporting granularity likely makes sense. With a longer reporting period — like a weekly forecast — you may miss short-term liquidity shortfalls and leave your firm cash-strapped.

And if reporting granularity is too fine, it can muddy the waters and disguise important data trends. At the same time, long reporting intervals may lead you to miss important signals too.

The table below shows examples of report objectives and which frequency of creation is best for each.

Not sure which reporting frequency is best? Read on to learn about daily, monthly, and yearly forecasting.

Daily Cash Forecasting

Daily cash forecasting is a short-term cash flow model used for day-to-day cash management and liquidity planning. The model works best for businesses that operate on fine margins or tight working capital cycles (WCC) — like a firm in the pre-acquisition stage.

Because of its short time horizon, daily forecasting gives a granular view of cash that enables day-to-day decision-making. Different internal and external factors can lead you to consider daily cash forecasting.

  • Internal: Excessive administration or delays in longer-term forecasts can lead to a lack of liquidity visibility. Daily cash forecasts provide quick insight into available operating capital for business expansion — like opening new branches, acquiring other companies, setting up plants, and more.
  • External: If your firm just signed a new credit agreement or secured a revolving credit line, daily forecasting helps you manage day-to-day cash flows for faster loan repayments.

For a daily cash forecast, source data from ERP systems, AP/AR ledgers, bank files, payroll and billing systems, CRM tools, and more.

Monthly Cash Forecasting

Similar to daily forecasts, a monthly cash flow forecast is often used for cash planning and management reporting. The model is also a good fit if your company’s debt repayment plans involve covenant forecasting .

Monthly forecasts provide a balanced perspective since they are in between annual budgets and shorter forecasts like daily or weekly. That’s why forecasts done on a monthly basis are ideal for measuring if you’ll be able to honor your financial promises — to investors, lenders, and others.

Data sources for monthly cash forecasts include budgets, historical data, business and sales plans, intercompany deal flows, and more.

Yearly Cash Forecasting

Over several 12-month periods— say three to five years— you can assess the cash your firm needs for the long term. These cash requirements span across capital projects and growth strategies like setting up a new production plant or office building.

A yearly cash forecast is often a good foundation for creating future annual budgets because it presents year-to-year financing, operations, and investing trends. Combine yearly cash forecasting with shorter forecast models to plan for multiple scenarios and create a rolling budget. When used together, these reports help you make more thorough cash plans.

Choose Your Cash Forecast Template Time Horizon

Along with setting reporting granularity, you’ll need to determine how much time your cash flow forecast will cover.

Forecast accuracy generally decreases with time, so the horizon for a short-term liquidity planning forecast ideally shouldn’t be long. In our experience, this type of forecast hardly covers more than 10 business days.

We have a short series of articles meant to help you decide the forecast time horizon that fits your business objectives. The first piece reviews the practical uses of the 13-week cash flow forecast .

Like granularity, your forecast’s time horizon should align with the report’s objectives. To see typical forecast horizon and goal pairings, check out this table.

Determine the Cash Flow Categories You’ll Use in Your Forecast

A cash flow forecast covers receipts (incoming cash) and payments (outgoing cash). Within these two sections, there are a number of subcategories, including:

  • AR cash collections: the amount of unpaid sales invoices customers owe you
  • Debt drawdown: any money you borrowed from available lines of credit
  • Sales collections: invoice payments you received from businesses or individuals
  • Capital expenditure: money you spent on purchasing or revamping fixed assets like land or buildings
  • Payroll: cash you used to pay staff and contractors
  • Taxes: the mandatory percentage of your income paid to tax authorities
  • Debt repayment: money you used to pay back loans
  • Intercompany payments: cash paid to a subsidiary firm.
  • One-off items: like expansion of a production facility

CashAnalytics Makes Cash Forecasting Easier Than Building from Scratch or Using a Template

If you plan to set up a cash flow forecasting process from the ground up, we’ve got you. This post is an extract from the guide we recently produced, which covers all aspects involved in setting up a cash flow forecasting process. Please follow this link to the Cash Flow Forecasting Setup Guide , which we welcome you to download. The guide discusses: what is involved in setting business objectives, how to set the process up, as well as what comes after go-live.

Alternatively, templates are a great way to create quicker cash forecasts.

With CashAnalytics , you don’t even have to worry about building a cash forecasting process from scratch or working around a manual template. Our cash flow forecasting software automates forecast processes, enables instant cash balance visibility, and aids variance analysis. We also provide step-by-step support to customise our tool for your specific business objectives.

Schedule a free demo to learn exactly how CashAnalytics works and see if it’s a good fit for you.

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How To Build A Cash Flow Forecast For Your Startup In 8 Steps

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  • November 17, 2023
  • Forecast your business

cash flow forecast startup

Whether you want to understand what’s your breakeven , your valuation or simply create a budget for your business plan, preparing a cash flow forecast for your startup is key.

There are a number of options available to you : use a financial model template, a software, hire an expert or do it yourself. In this article we will discuss the latter option: how you can create a rock-solid cash flow forecast for your startup yourself. Let’s dive in!

What is a cash flow forecast?

A cash flow forecast is a document (often in the form of a spreadsheet such as Excel or Google Sheets) whereby one estimates the flow of cash (cash in and out) of a business over a specific period of time.

In other words, a cash flow forecast simply is the projection of a business’ cash flow statement .

What’s a cash flow statement?

The cash flow statement is one of the 3 financial statements of any business. As you might already know, they are: the profit-and-loss (“P&L”, also referred to as “income statement”), balance sheet and cash flow statement.

Whilst your P&L includes all your business’ revenues and expenses in a given period, the cash flow statement records all cash inflows and outflows over that same period.

business plan projected cash flow template

Indeed, some revenues and expenses are not necessarily recorded in your P&L but should be included in your cash flow statement instead. Why is that?

There are 2 main reasons:

Your P&L only includes the expenses you incurred to generate revenues over the same time period

For example, if you sell $100 worth of products in July 2021 and incurred $50 cost to source them from your supplier, your P&L shows $100 revenues minus $50 expenses for that month.

But what about if you bought a $15,000 car to deliver these products to your customers?

The $15,000 should not be recorded as an expense in your P&L, but a cash outflow instead. Indeed, the car will help you generate revenues, say over the next 5 years, not just in July 2021. We call these expenses “ capital expenditures ” (or “capex”).

Some expenses in your P&L aren’t necessarily cash outflows

Think depreciation and amortization expenses for instance: they are pure artificial expenses and aren’t really “spent”.

Indeed, although your P&L might include a $100 depreciation expense, your cash flow remains the same. You didn’t really spend that $100: it’s purely an accounting adjustment to account for the decrease in asset value in your balance sheet.

Note: Depreciation and Amortization expenses are used in accounting to reflect the “loss” in value of an asset. For instance, the $15,000 car you just bought, like any other asset, will depreciate over time. Assuming a 5 years depreciation schedule, your car would be deemed worthless in 5 years time.

business plan projected cash flow template

Why does your startup need a cash flow forecast?

Entrepreneurs and startup founders often create their first budget and cash flow forecast when pitching investors. Budgets later often end up somewhere idle in a folder, outdated, and are updated for the next funding round.

Yet, budgeting for your startup shouldn’t just be a matter of ticking the box for investors. Instead, your cash flow forecast should be on top of your ongoing management tasks: keeping an updated monthly cash flow budget is essential to make better decisions for your business.

A few examples for creating (or updating) a cash flow forecast are:

  • Assess your breakeven point : when can you realistically expect to be profitable
  • Estimate a valuation for your business , even if you are pre-revenue
  • Include in your pitch deck or business plan
  • Understand how much you need to raise for your fundraising

business plan projected cash flow template

Expert-built financial model templates for tech startups

The 8 steps to create a cash flow forecast

Creating financial forecasts for your startup shouldn’t be overly complicated. Even if you have no previous finance experience, with some basic accounting and finance knowledge one can create great cash flow forecast for any startup. Follow the steps below to build your own.

The first thing you will need to do is to open a blank spreadsheet (Excel or Google Sheets is fine), you can check this Excel template for accounting and follow the 8 steps below.

Remember that your cash flow forecast will need to be as accurate as possible , to do so you can sources such as market research reports, competitors analysis or even your own financial performance (if any).

1. Start from your actuals (if any)

If you have any historical performance to date, start from this to build your startup cash flow forecast.

Historical performance can be financials (revenue for example) but not only. If you haven’t yet started to generate revenue and/or revenue is limited and you feel other metrics are more relevant, go from there. For instance, if you have started to build a user list, or email sign-ups, you can also use these numbers to forecast growth, and ultimately revenue.

Only include the key drivers to your business

You don’t necessarily need now to start from your entire profit-and-loss or cash flow statement you would have exported from Xero for instance.

Instead, identify what drives the most of your business’ performance: is this the number of customers you have? Is this the commission rate you are charging your customers?

The key drivers will help us estimate your financial forecasts later on. As such, they need to be clearly identified. A few examples of drivers for 3 illustrative businesses are:

  • Retail : number of customers, average order value
  • Ecommerce : number of visitors, conversion rate, average order value
  • SaaS : number of users, churn, average revenue per user

Once you have identified your key drivers, include them as a start to your model. For instance, if you are generating $10,000 sales from 3,000 orders in a given month, your key drivers in that month can be:

  • Orders per month: 2,000
  • Average order value: $5.0

2. List all startup costs

For new businesses which don’t have yet historical performance, start by listing all the expenses you incur and the assets you need to buy before launching your business.

There are 2 types of startup expenses:

  • Assets : one-time purchases of assets such as equipment, machinery, inventory, etc.
  • Expenses : any expenses (usually fixed) you incur before you start your business. Do you need to pay for legal fees to incorporate multiple entities? Do you have to pay for a specific license for marketing your products to consumers? Maybe you will need to pay someone to build your website from which you will start acquiring customers later on?

business plan projected cash flow template

3. Build your revenue model

Before we estimate revenue based on the drivers discussed earlier (step 1), we need to clearly identify what is your revenue model.

What is your revenue model?

A revenue model can be subscription, transactions, ads, commission revenue, etc. For a refresher, read our article on the 8 most popular revenue models .

Surprisingly enough, one business can have multiple revenue models.

For example, if you sell subscriptions to customers (e.g. gym membership) yet you also sell one-time services (e.g. private sessions with trainers), these should be listed as two separate revenue models.

Indeed, they work differently:

  • The subscription is a function of the total number of users you have multiplied by a recurring monthly fee
  • Private sessions are instead a function of a % of your users multiplied by a one-time fee

How to forecast revenue?

Once we have identified your revenue model(s), we need to build out revenue for each of them.

Using our gym membership above, subscription revenue will be a function of the number you have over time times the recurring fee. For private sessions instead, use a percentage of users who pay for a session each month (based on your historical if any) – for instance 5% of total users – and multiply it by the total number of users and the one-time session price.

Note: you might be wondering whether you should be taking into account VAT / sales tax for your revenues projections. VAT impacts your cash flow but doesn’t impact your profit-and-loss so you might not need to include it. For more information, read our article here .

4. Forecast variable costs

Variable costs are expenses that increase or decrease based on the level of sales and/or another factor (e.g. customers for instance). As such, they can’t just be flat over time, instead their amount will vary based on other parameters of your financial plan.

Common variable costs are:

  • Raw materials
  • Advertising spend (e.g. paid ads)
  • Packaging and shipping costs (ecommerce)
  • Transportation
  • Corporate taxes

If you have historical performance, use your actuals to forecast variable costs. For example, if you pay $10 in shipping costs in average per order, use the same value for your projections.

Instead, new businesses will have to find information either with industry benchmarks , public sources (cost-per-click for paid ads spending can be found for any keyword on Google Planner for instance) or quotes from potential suppliers.

5. Forecast fixed costs

Fixed costs in comparison, are easier to estimate as they remain fixed over the projected period. Common examples are:

  • Salaries and benefits (for each employee)
  • Website hosting
  • Rent and utilities

Salaries and other payroll expenses often constitute the bulk of fixed costs. In order to accurately forecast salaries you need to estimate the right amount of people you will need over time, and their salaries.

Average salaries for specific jobs and geographies can easily be found in industry benchmarks .

The number of people your business will need depends on their function: some teams will increase or decrease based on certain metrics such as revenue (sales and customer success teams often grow in line with revenue) whilst others will remain stable (administrative functions e.g. finance).

business plan projected cash flow template

6. Putting it all together

Once you have projected revenue and expenses based on your key drivers, you can now consolidate it all under your profit-and-loss. Subtract all expenses (fixed and variable) as well as startup costs from revenue to get to net profit .

To calculate your cash flow statement, no need to do anything complicated at this stage: simply use your net profit, and subtract any other cash items (i.e. capital expenditures ), for instance the startup asset purchases discussed above (step 2).

Step 7. Review and adjust

After having built your projected profit-and-loss and (simplified) cash flow statement, take time to review your estimates. Do they make sense to you? Is there anything surprising in your projections?

The review of your financial forecast should help you determine 2 things:

  • Are your projections error-free? It’s easy to get lost in spreadsheet and make mistakes in your calculations.
  • Are your projections realistic? Now that you take a step back to look at the big picture (revenue, growth, margins, cash flow), it’s easier to assess whether your projections are unrealistic or not.

Step 8. Determine the amount you need to raise

If you are creating a cash flow forecast for your startup, chances are that your business will be loss making in the first few months or operations. No worries, that’s why startups often raise funding at the beginning before starting operations and/or product development.

If you are looking for funding for your startup, your cash flow forecast will help you assess how much you should raise.

Disclaimer: raising more is not necessarily better. Knowing exactly how much you need to raise will in fact dramatically increase your chances of raising funding.

business plan projected cash flow template

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Monthly Cash Flow Forecast Model

Step-by-Step Guide to Understanding How to Build a Monthly Cash Flow Forecast Model

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What is a Monthly Cash Flow Forecast Model?

The Monthly Cash Flow Forecast Model is a tool for companies to track operating performance in real time and for internal comparisons between projected cash flows and actual results.

While 12-month forecast models attempt to project the future, a significant amount of benefits can be obtained from a monthly variance analysis, which quantifies how accurate (or inaccurate) management estimates were in the form of a percentage.

Monthly Cash Flow Forecast Model

Monthly Cash Flow Forecast Model Importance

A company’s ability to produce positive cash flows over the long run determines its success (or failure).

The cash flows of a company – in its simplest form – refers to the cash that comes into and out of the company.

Monthly forecasts establish limits on a company’s spending based on income and retained earnings .

The chart below lists some common cash flow drivers :

Monthly Cash Forecast Models vs Financial Statements

Under accrual accounting, public companies must submit filings with the SEC each quarter (10Q) and at the end of their fiscal year ( 10K ).

On the other hand, monthly forecast models are internal tools often used by FP&A professionals or owners of small businesses.

While large, publicly-traded companies will certainly have their own set of internal models updated constantly on a daily (or weekly) basis, our post will focus on providing a basic overview of monthly cash flow models.

Cash-Based Accounting vs Accrual Accounting

One distinction between monthly cash flow forecasts and the financial statements filed by public companies is that the former typically abides by cash accounting.

Using cash-based accounting tends to be more common for smaller, private companies, which have far less sophistication in their business models, financing structures, etc.

  • Cash-Based Accounting: Under cash accounting, recognition of revenues and expenses occurs once cash is received or physically transferred, regardless of whether the product or service was delivered to the customer.
  • Accrual Accounting: For accrual accounting, “earned” revenue (i.e. the associated product/service has been delivered) and the coinciding expenses are recognized in the same period (i.e. the matching principle).

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Forecasting Monthly Cash Flows

The first step to creating a monthly cash flow forecast model is to project your company’s future revenue and expenses. Note that the model assumptions driving the forecast must be based on valid reasoning to justify the projection.

Examples of Cash Flow Drivers Average Revenue Per User (ARPU) Average Order Value (AOV) Average Sale Price (ASP) Average Number of Items Per Order

The more existing historical data there is to confirm the validity of the assumptions, the more reliable the forecast becomes.

Early-stage investors usually take the forecasted monthly financials and market sizing estimates of seed-stage start-ups with a grain of salt.

But at the same time, monthly cash flow forecast models are not meant to manage urgent liquidity requirements, as is the case for the thirteen-week cash flow model (TWCF) used in the restructuring of distressed companies.

Variance Analysis

Once the 12-month projections are complete, updates to the existing model are continuously made as new financial data rolls in and are collected internally.

Variance analysis is the difference between two metrics:

  • Expected Performance
  • Actual Performance

The management team of a company should strive to minimize the difference between expected and actual performance, especially as they gain more experience and knowledge of the industry, competition, etc.

Improving the accuracy of cash projections year-over-year is a sign that management is developing a better understanding of operating their company, although there are inevitable circumstances when unexpected events can change a company’s trajectory.

Comparing past projections to actual operating results can improve the accuracy of future projections, especially if management can spot long-term trends and recurring patterns.

Through experience, management can better determine factors that contribute toward outperformance, performance in line with expectations, or underperformance.

Favorable variance refers to when actual performance came in better than originally projected – similar to a positive “earnings surprise”.

But in the case of negative variance, the actual performance was underwhelming and came in below management expectations, similar to a public company missing an earnings per share ( EPS ) target.

“Rolling” Cash Flow Forecasts

Once the monthly cash flow forecast (and the variance analysis) is complete, the recommended next step is to aggregate the monthly data into an annualized section.

Companies can then assess the current year from a high level, as well as create multi-year projections with the compiled data sets – a long-term process that starts with monthly financial models.

Monthly Cash Flow Forecast – Excel Template

We’ll now move to a modeling exercise, which you can access by filling out the form below.

Monthly Cash Flow Forecast Model Assumptions

For our monthly cash flow model, we’ll be creating a 12-month forecast model for a small business (SMB).

Coming up with the operating assumptions, which is the most time-consuming portion of the analysis, will not be part of our exercise.

In reality, the numbers input for the “Expected” column would be linked from a granular model that accounts for customer cohorts, pricing plans, customer pipelines, and more.

If that were the case, the figures listed under the “Expected” column would be in black font color, as opposed to blue, to reflect the fact that they’re linkages to another tab within the model.

Since building a comprehensive model and then defending each assumption is not realistic for a simplistic modeling exercise like ours, we’ll instead hardcode each projected figure.

But first, we need to set up the monthly structure for our model, which we’ll accomplish using “=MONTH(1)” for January, and then “=EOMONTH(Prior Cell,1) for each subsequent month until we reach December.

For each month, we’ll split up the financials between two columns titled:

The model assumptions for the forecasted performance have been listed in the following sections:

Monthly Expected Cash Receipts

  • Cash Revenue: $125,000 Per Month
  • Accounts Receivables (A/R) Collection: $45,000 Per Month
  • Interest Income: $10,000 Per Month

The concept of revenues and cash receipts is similar, but revenues are recorded on the income statement under accrual accounting reporting standards while cash receipts are based on cash-based accounting.

Cash receipts directly increase the total cash amount recorded on the balance sheet , but revenue can be earned but recognized as accounts receivable (A/R) instead of as “revenue” on the income statement, for example.

Monthly Expected Cash Disbursements

  • Inventory Purchase: $40,000 Per Month
  • Capital Expenditures (CapEx): $10,000 Per Month
  • Employee Wages: $25,000 Per Month
  • Marketing Costs: $8,000 Per Month
  • Office Rent: $5,000 Per Month
  • Utilities: $2,000 Per Month
  • Income Taxes: $85,000 @ Quarter End (4x Per Year)

Tying all of the assumptions together, total cash receipts are expected to be $180,000 each month.

As for cash disbursements, the expected monthly expenses are $90,000. However, in the months when taxes are due, cash expenses increase to $175,000. Note that even for small businesses, this sort of tax treatment is a simplification and is NOT meant to reflect reality by any means (i.e. different rules by jurisdiction, local/regional taxes, real estate taxes, etc.).

Monthly Cash Flow Forecast Model Example

Next, we’ll populate the columns titled “Actual” with the assumptions shown below.

For cash receipts, expected performance was understated by $16,000 each month ($196,000 vs. $180,000).

Conversely, the cash disbursements were also understated – but in the case of expenses – higher values have a negative impact on cash flow and reduce profitability .

In non-tax paying months, expenses were $105,800 each month when the projected amount was $90,000, which comes out to a difference of $15,800.

And for the tax-paying months, monthly expenses are $190,800, versus expectations of $175,000.

The “Net Change in Cash” is calculated at the bottom by adding the “Total Cash Receipts” to the “Total Cash Disbursements”.

  • Expected Net Change in Cash (Non-Tax Months): $90,000
  • Actual Net Change in Cash (Non-Tax Months): $90,200

For the months in which taxes are paid:

  • Expected Net Change in Cash (Tax Months): $5,000
  • Actual Net Change in Cash (Tax Months): $5,200

The monthly variance across the entire forecast is $200, which reflects a very accurate estimation given the minimal difference between the expected and actual performance.

As a recommended modeling best practice, we’ve calculated the totals for the Year 2022, for which we use the “SUMIF” Excel function to add the relevant figures.

Monthly ➞ Annual Excel Formula “=SUMIF (Range of Expected and Actual Columns, “Expected” or “Actual” Criteria, Range of Values to SUM)”

business plan projected cash flow template

Here, we can see the summarized sources of the variations, as well as the offsetting factors.

For instance, cash revenues were understated by 20%, A/R collection was overstated by 20%, and there were no surprises in the amount of interest income received (i.e. fixed income).

Regarding the cash outflows, the higher disbursements directly connected to higher revenue generation (i.e. variable costs) like inventory purchases, CapEx , and employee wages, which were 20% higher than anticipated.

Marketing expenses were relatively aligned with management expectations and were 10% higher than the original forecast.

Fixed costs such as office rent and utility bills were held constant, as well as income taxes, since the applicable tax rate is known and can be estimated upfront as new sales figures come in.

Monthly Forecast Done

Variance Analysis Example Questions

  • Which neglected factors led to the 20% underestimation of cash revenue?
  • How can our company’s A/R collection processes be improved to fix the current issue ($432k collected vs $540k expected)?
  • While the increases in inventory purchases (COGS) and CapEx are reasonable considering the revenue increase, was the recent spending in-line with historical trends as a percentage of revenue?

The expected net change in cash for 2022 was off by only $2,400, or 0.3%, in favor of the company – meaning there is more cash on hand for the company than originally forecasted.

business plan projected cash flow template

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Cash Flow Projection Business Plan Template

Cash Flow Projection Business Plan Template

What is a Cash Flow Projection Business Plan?

A cash flow projection business plan is a planning tool used to project future cash flows and identify potential financial risks. It is used to assess the financial health of a business and helps to inform decision-making and budgeting. The plan provides an overview of the anticipated cash flows of the business over a given period, allowing owners to plan ahead and adjust their strategies accordingly.

What's included in this Cash Flow Projection Business Plan template?

  • 3 focus areas
  • 6 objectives

Each focus area has its own objectives, projects, and KPIs to ensure that the strategy is comprehensive and effective.

Who is the Cash Flow Projection Business Plan template for?

This cash flow projection business plan template is designed for entrepreneurs, business owners, and financial professionals. It can help them to plan and project cash flows for their businesses, identify potential financial risks, and create a roadmap for the business’s financial future. This template can be used to create a comprehensive and effective plan.

1. Define clear examples of your focus areas

Focus areas are the broad topics that define the goals of a strategic plan. Examples of focus areas for a cash flow projection business plan could include: Project Cash Flow; Increase Revenue; Optimize Expenses.

2. Think about the objectives that could fall under that focus area

Objectives are the specific goals that you hope to achieve within each focus area. Examples of objectives for the focus area Project Cash Flow could include: Develop a business plan to project cash flows; Create a cash flow projection plan.

3. Set measurable targets (KPIs) to tackle the objective

KPIs are measurable targets that can be used to track progress towards a specific objective. Examples of KPIs for the objective Develop a business plan to project cash flows could include: Analyze industry-related cash flow projection methods.

4. Implement related projects to achieve the KPIs

Projects are the specific actions that must be taken in order to achieve a KPI. Examples of projects for the KPI Analyze industry-related cash flow projection methods could include: Research cash flow projection methods.

5. Utilize Cascade Strategy Execution Platform to see faster results from your strategy

The Cascade Strategy Execution Platform is a powerful tool that enables businesses to create, track, and report on their strategic objectives and goals. With Cascade, leaders and teams can easily create, track, and report on their strategic objectives and goals, as well as quickly adjust their strategy as needed. Cascade also provides real-time updates and data, allowing them to make informed decisions in order to achieve their desired goals.

Cash Flow Statement for Your Business Plan

Know how your money is moving..

It is a common small-business mistake to look at an income statement and conclude that a business is healthy because it is profitable. A profitable business, particularly a growing business, can still run into serious cash problems. A business that runs out of cash soon goes out of business. That’s why your business plan must include a Statement of Cash Flow.

The statement of cash flow starts by looking at the beginning cash and then makes adjustments for things that happen during the period, which impact cash. Finally, the ending cash is calculated for the month. The current month’s ending cash is next month’s starting cash. Open the sample statement of cash flow (below) and step through it from top to bottom. This example will serve as a template for your own cash flow statement.

The starting point for cash flow is the Net Ordinary Income from the income statement. From there, we’ll make adjustments to track actual inflows and outflows of cash.

Definitions

Increase / (Decrease) in Accounts Receiv able. This adjustment can seem counterintuitive at first. It is easiest to understand using the example of the first month of the new business. The income statement showed revenue of $1,000. Since the amounts were invoiced on terms of net 30, no cash has yet been received. Therefore, accounts receivable increased by $1,000.

On the sample cash flow statement, look at the January “(Increase) / Decrease in Accounts Receivable.” To reconcile net ordinary income to cash, we have to subtract $1,000. The cash flow statement has to show the change in accounts receivable from one month to the next.

In our sample financial statements, we made the assumption that 100% of the previous month’s sales will be collected in the next month, and none of the current month’s sales are collected in the current month. Assumptions such as this are reasonable taken as an average and can be used to forecast this line item of your cash flow statement.

(Increase) / Decrease in Accounts Payable. Just as we made an entry above for changes in accounts receivable, we would have a similar entry for the change in accounts payable. If our accounts payable (bills owed but not paid) increase, we would have to subtract the amount of change to reconcile cash to net operating income. Most new, small businesses are required to pay their bills in the current month. As such, accounts payable stay at approximately $0. All bills are paid at the end of the month. With no change from month to month, no cash flow adjustment is necessary.

Let’s continue with the other adjustments, which are more straightforward.

Deposits and Prepaid Expenses . A deposit or prepaid expense doesn’t show up on the income statement because it is not a current expense. Yet it takes away from cash in the bank. When our sample business signed an office lease, it had to provide a security deposit of $2,000 in February. This isn’t “rent,” it’s a deposit. You’ll see this number again when we talk about the balance sheet. But for now, we need to subtract this amount, $2,000, in February to further reconcile net operating income to cash. You’ll see this entry in February of our sample statement of cash flow under Deposits and Prepaid Expenses.

Capital Purchases. For an understanding of how capital purchases and depreciation work together, read the capital purchases section and the depreciation section together (see below).

When you purchase a piece of equipment, the impact on cash is immediate. However, the full expense only shows up on the income statement over a longer period of time. So once again, we have to make an adjustment to reconcile net operating income to cash. This is a two-part exercise. First we take into account the purchase and then the “depreciation,” which is highlighted below.

To account for the purchase price of the asset, we make an entry for the full cost on the statement of cash flow in the Capital Purchases line. In our sample financials, you’ll see that the business made furniture, equipment or other capital purchases of $12,000 in January, $5,000 in March and $3,000 in August. These are shown as negative numbers because they take away from cash.

Depreciation. When you purchase an asset such as a piece of equipment with a useful life greater than the current year, the government requires the asset to be written off over a longer period of time. You can’t simply create an expense for the full amount in the current period. Why does the government care? They don’t want businesses making large purchases just to reduce taxes. The rules governing depreciation are complex and vary by the type of asset. Here we’re addressing only how depreciation affects cash flow.

In our sample company, our “sample accountant” has calculated a depreciation schedule for each type of asset and told us to spread out depreciation expense evenly over the course of the year at $1,000 per month. On the income statement, this keeps the expense even instead of creating a big hit in a single month. However, this depreciation isn’t a cash expense, it’s just a write-off against taxable income. On the cash flow statement, we have to add back depreciation to reconcile cash to net operating income. See the sample statement of cash flow where we’ve added back $1,000 in each month.

Net Cash from Operations. The sum of the net operating income and the adjustments to reconcile to cash (detailed above) equal the net cash from operations. This is a subtotal on our way to showing the month-ending cash balance.

Financing Activities. Since financing activities (all loans and capital investments) impact the cash flow statement much in the same way, we’ll cover them all in this same paragraph. Each time you receive money for a loan or capital investment (whether by an owner or investor) the proceeds need to show up on your statement of cash flow. Money or “cash” comes into the business and it needs to be accounted for.

While interest on a loan is an expense and therefore found on the income statement, principal repayment is not categorized as an expense. Therefore, to reconcile the income statement to cash, we have to show these repayments on the statement of cash flow. Loan repayments take away from cash and are therefore shown as a negative number on the cash flow statement.

On the sample statement of cash flow, you can see that the business received loan proceeds of $40,000 in January, plus an investment from the owner (Capital Stock) of $15,000 also in January. Then, the company repaid $1,000 in principal each month of the year. These monthly repayments reduce cash.

Net Cash Increase / (Decrease). Continuing down the Statement of Cash Flow, the Net increase / (Decrease) in Cash is the fully reconciled change in cash for the period. In other words, it takes into account net ordinary income, adjustments for changes in accounts receivable, deposits and prepaid expenses, capital purchases and depreciation. Next, the adjustments for financing activities are accounted for as described above. The sum of the net ordinary income and all of the adjustments is the net increase or decrease in cash.

Beginning and Ending Cash. In the sample financial statements, the Ending Cash for January is $37,175. Notice that the Beginning Cash for February is the same amount, $37,175. Beginning Cash for any period is simply the ending cash for the prior period.

To calculate the Ending Cash, you add the Net Cash Increase or Decrease to the Beginning Cash. In other words, take what you started with, take into account the change in the period, and what you have left is the ending cash. In our sample financials, in January the business started with nothing (since that’s the month the business was started), and the Net Increase in Cash was $37,175. Therefore the Ending Cash for January was $37,175, or $0 + $37,175. As you can see, the business took out a loan, received a capital investment from the founder, made some capital purchases, and had a net ordinary loss.

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Tim berry on business planning, starting and growing your business, and having a life in the meantime., standard business plan financials: how to project cash flow.

No matter what your business planning objectives, cash flow is still the most vital resource in the business, and managing cash is the single most important business function. Without cash, you go under. So I always assume cash flow is included in every kind of real business plan. And it is the most important component of standard business plan financials. This is another of my series on standard business plan financials .

profits-vs-cash-small

(Important: If you’re using LivePlan, life gets a lot easier for you. Please read LivePlan Cash Flow instead of this post. )

The Projected Cash Flow is what links the other two of the three essential projections, the Projected Profit and Loss and Projected Balance Sheet, together. The cash flow completes the system. It reconciles the Profit and Loss with the Balance.

Experts can be annoying. There are several ways to do a cash flow plan. Sometimes it seems like as soon as you use one method, somebody who is supposed to know tells you you’ve done it wrong. Often that means that expert doesn’t know enough to realize there is more than one way to do it.  I’m doing direct cash flow for this post. I may do indirect in a later post.

Direct Cash Flow

So here is a direct cash flow plan. You can see the potential complications and the need for linking up the numbers from the other statements. Your estimated receipts from accounts receivable must have a logical relationship to sales and the balance of accounts receivable. Likewise, your payments of accounts payable have to relate to the balances of payables and the costs and expenses that created the payables. Vital as this is to business survival, it is not nearly as intuitive as the sales forecast, personnel plan, or income statement. The mathematics and the financial projections are more complex.

Here’s a sample Projected Cash Flow for a bicycle shop, so you can see how that works:

Cash Flow Example

Estimating Receipts from Receivables

The first two rows of Garrett’s cash flow projection depend on detailed estimates of money coming in as his customers on account pay their invoices. To estimate that, he lays out his guess based on the assumption that only 10% of his sales are on credit (on account), and that his customers pay their invoices in about one month on average. That estimate looks like this:

cycle-shop-receivables-analysis

In this case, the sales on credit are 10% of the estimated total sales in the Sales Forecast, $26,630. That’s the result of Garrett’s assumption, based on the nature of his business. And the money involved comes in one month later. This worksheet projects the Accounts Receivable value in Garrett’s Projected Balance Sheet, as well as the Received from AR value in the Projected Cash Flow. The receivables analysis depends on information in the Profit and Loss Projection, plus an assumption about Sales on Credit, and another on waiting time before payment. And it affects the Projected Balance and the Projected Cash Flow, as shown in this next illustration:

Cash and Receivables

Estimating the Impact of Inventory

Inventory presents another set of important cash-related assumptions. I explained earlier that in the case of inventory, proper accounting practices require special details. The cost of inventory that shows up in the Projected Profit and Loss is related to timing of sales. The actual cash flow implications of inventory depend on when new inventory is purchased, as shown here:

sample-inventory-cash-analysis

As with Accounts Receivable in the previous illustration, the inventory analysis depends on information from the Sales Forecast, and it sends information to both the Projected Balance Sheet (Ending Inventory) and the Projected Cash Flow (Inventory Purchase).

Estimating the Impact of Payables

Most businesses wait a month or so before they pay invoices for goods and services received from other businesses. That means we can save on our cash flow by holding back some money and paying it later. With proper accrual accounting, that money is recorded on the Balance Sheet as Accounts Payable. Estimating Accounts Payable takes a careful combination of calculations and assumptions. First we have to collect the full amount of payments. Then we account for payments made immediately, not held in Accounts Payable. After that, we estimate how long, on average, we hold payments. That analysis is shown below:

Cash and Payables

In this case, it is assumed that the store will pay its bills about a month after it receives them.

Cash Flow is About Management

Reminder: you should know how to project cash flow using competent educated guesses based on an understanding of the flow in your business of sales, sales on credit, receivables, inventory, and payables. These are useful projections. But real management is minding the projections every month with plan vs. actual analysis so you can catch changes in time to manage them. The illustration here shows projected profits for the bicycle store compared to the projected cash flow, using the projections presented in this chapter:

Profits vs. Cash

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business plan projected cash flow template

Cash flow projection template

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What is a cash flow projection?

A cash flow projection is the process of estimating cash in and out of the business over a specific period of time. The goal is to predict future cash positions to avoid a cash shortage and earn returns on any cash surplus the business may have. A properly prepared cash flow projection provides the business with a view of all expected funds that will be coming in and going out of the business. Knowing your projected cash flow can provide a solid basis for making business decisions.

Who can use this free cash flow projection template?

Cash flow projection templates are commonly used by businesses, entrepreneurs, financial analysts, and accountants.

Why should businesses use a cash flow projection template

The cash flow projection template is used for many different reasons, including:

  • Financial planning : A cash flow projection template helps in planning future cash flows, allowing businesses to allocate resources effectively and make informed financial decisions.
  • Identifying trends and patterns : Cash flow projection templates can help enable businesses to proactively respond to changing market conditions.
  • Risk management : By anticipating cash flow gaps or surpluses, businesses can develop contingency plans and manage financial risks. Businesses can manage their cash resources effectively to avoid cash shortages and optimize cash utilization.
  • Communication with stakeholders : A projected cash flow template can help clearly communicate financial expectations and plans to stakeholders, such as investors, lenders, or internal management.

How to prepare a cash flow projection template

Here’s how to do a cash flow projection in Excel:

Step 1: Download cash flow projection Excel template.

Step 2: Estimate your monthly sources of cash.

Step 3: Estimate all your expenses each period related to company operations and overhead.

Step 4: Totals in the template will be automatically calculated.

Step 5: Verify your cash projection.

You can find more detailed instructions on how to use our cash flow projection template upon download .

What is the purpose of a cash flow projection template?

The purpose of a cash flow projection template is to estimate  future cash inflows and outflows for a business or individual, typically extending several months to several years.

What information does a cash flow projection template include?

A cash flow projection template includes information that helps you estimate the anticipated cash inflows and outflows for a specific period. The level of detail and complexity can vary based on the needs of the business or individual, but some key components in a cash flow projection template include:

  • Beginning cash balance
  • Cash inflows
  • Cash outflows
  • Net cash flow
  • Ending cash balance
  • Notes and assumptions

Cash flow projection vs. cash flow forecast

Cash flow projection and cash flow forecast are often used interchangeably, but can be distinguished by timeframe and level of detail. Cash flow projection templates estimate cash inflows and outflows over several months to years, taking into consideration a wider range of financial factors. Cash flow forecast templates, on the other hand, focus on the short-term (week, month, quarter) liquidity needs and opportunities.

Can this cash flow projection template be used in Google Sheets?

Yes, download our cash flow projection Excel template. Then in Google Sheets, follow these steps:

  • Create a new or open an existing spreadsheet.
  • Click File. Import.
  • Choose the Excel cash flow projection template file and click Select.
  • Choose an import location option: Create new spreadsheet, Insert new sheet(s), or Replace spreadsheet.
  • Click Import data and you should have this cash flow projection spreadsheet in Google Sheets.

Process Street

Business Plan Financial Projections Template

Identify financial requirements and objectives, draft projected income statement, detail projected balance sheet, calculate projected cash flow statement, apply appropriate financial ratios analysis.

  • 1 Current Ratio
  • 2 Gross Profit Margin
  • 3 Return on Investment
  • 4 Debt-to-Equity Ratio
  • 5 Inventory Turnover

Adjust for inflation rate predictions

Consider the impact of business growth on financial projections, check cost assumptions for products and services, investigate potential risks and variables in the financial projection, approval: financial analyst for initial review.

  • Draft projected income statement Will be submitted
  • Detail projected balance sheet Will be submitted
  • Calculate projected cash flow statement Will be submitted
  • Apply appropriate financial ratios analysis Will be submitted
  • Adjust for inflation rate predictions Will be submitted
  • Consider the impact of business growth on financial projections Will be submitted
  • Check cost assumptions for products and services Will be submitted
  • Investigate potential risks and variables in the financial projection Will be submitted

Incorporate feedback and modify financial projections accordingly

Cross-check with industry standards and competitor analysis, analyse break-even point and profitability metrics, compile final draft of financial projections, approval: ceo review and validation of final draft.

  • Incorporate feedback and modify financial projections accordingly Will be submitted
  • Cross-check with industry standards and competitor analysis Will be submitted
  • Analyse break-even point and profitability metrics Will be submitted
  • Compile final draft of financial projections Will be submitted

Send financial projections for external auditing

Conduct scenario analysis for best-case, worst-case, and most likely outcomes, discuss and finalize plan with key stakeholders, approval: board of directors.

  • Send financial projections for external auditing Will be submitted
  • Conduct scenario analysis for best-case, worst-case, and most likely outcomes Will be submitted
  • Discuss and finalize plan with key stakeholders Will be submitted

Implement financial projections into overall business plan

Take control of your workflows today., more templates like this.

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Cash Flow Forecast Template

Table of Contents

What is a Cash Flow Forecast?

A cash flow forecast estimates the future inflows and outflows of cash for a business. It can help a business plan for upcoming expenses and ensure enough money is available to meet its obligations.

Cash Flow Forecast Template

The forecast is typically made annually, monthly or quarterly, and it can be very helpful in managing cash flow. To create a cash flow forecast, businesses will need to track their current inflows and outflows of cash and make assumptions about future sales and expenses. With this information, businesses can develop a realistic picture of their future cash needs and plan accordingly.

At Business Accounting Basics, we understand the importance of reviewing your cash and ensuring there is enough for business activities. We have therefore created a cash forecast template available for free download. We also include a complete example and instructions to help get you started.

How to use a Cash Flow Forecast Template

A cash flow forecast is an essential tool for any business. It can help you track incoming and outgoing funds, anticipate shortfalls, and make informed decisions about allocating your resources.

Several different templates are available online, but the basics of creating a forecast are always the same.

First, gather all of your financial information for the month. It includes sales revenue, costs of goods sold, operating expenses, and any other income or expenses. Next, input this information into the template.

Most templates will have pre-set categories, but our template allows you to set the categories for your specific needs. Once all the information is entered, the template automatically generates a forecast for the month or year.

It will give you a clear picture of your cash flow situation and help you to make informed decisions about where to allocate your resources.

Tips for creating a successful Cash Flow Forecast Template

1. review your current financial situation.

Before you can forecast your cash flow, you must understand your current financial situation well. It includes tracking your income and expenses for the past several months and knowing your business’ sales trends.

2. Use historical data to make assumptions about future cash flow

Once you understand your current financial situation, use this information to make assumptions about future cash flow. This will help to create a more accurate forecast.

3. Make sure all income and expenses are included in the forecast

To develop an accurate picture of your future cash flow, including all income and expenses in the forecast. This includes not only regular monthly expenses but also one-time or irregular expenses

4. Anticipate changes in revenue and expenses

Businesses can’t always predict when their revenue or expenses will change, so it’s important to anticipate these changes in the forecast. This will help you stay prepared for any fluctuations in cash flow.

5. Reconcile actual results with the forecast regularly

The best way to ensure that your cash flow forecast is accurate is by reconciling actual results with the forecast regularly. This will help you to identify any areas where the forecast is inaccurate and make adjustments accordingly

Following these tips, you can create a successful cash flow forecast template to help you manage your business’ finances effectively.

4. Benefits of using a Cash Flow Forecasting Template

A cash flow forecasting template can be valuable for any business owner. By creating a forecast, businesses can get a better picture of their incoming and outgoing cash flow and make necessary adjustments to ensure they always have enough cash on hand to meet their obligations.

Forecasting can also help businesses plan for significant expenses, such as equipment purchases or expansion projects. A cash flow forecast can also give business owners peace of mind by providing a clear view of their financial situation. With all these benefits, it’s no wonder that more and more businesses are using cash flow forecasting templates to help them stay on top of their finances.

Using a template already provided online will save time in setting one up yourselves and should have been tested by the developer to ensure that the additions are all correct. If you are new to Excel, setting up templates is a steep learning curve.

How often should you update your Cash Flow Forecast Template?

Many businesses use a cash flow forecast template to help them track and predict their short-term cash flow. Depending on the size and complexity of your business, you may need to update your template weekly, monthly, or quarterly.

Updating your template more frequently can better understand your current cash situation and help you make more informed decisions about spending and saving. However, more frequent updates may require more time and attention to detail.

Ultimately, the frequency you update your cash flow forecast template should be based on your specific needs and resources.

Where to get help with creating a Cash Flow Forecast Template

While there are many places to find templates online, including our free version. It’s important to ensure that your chosen template is suitable for your business. Talk to your accountant or bookkeeper about what information should be included in your template, and consider whether you need an accounting software program or an Excel spreadsheet.

An accountant might even have their own template available; if you don’t have the time, they can assist you in preparing a forecast. With a little bit of planning, you can find the right template to help you manage your cash flow and keep your business on track.

Where to get all the information to enter into a cash flow forecast

1. Start with your income. This should include all revenue from sales, services, interest, investments, and any other sources. The figures are the net sales (no sales tax); if you expect any tax refund, include them.

2. Next, list all of your expenses. This should include fixed expenses, like rent or mortgage payments, and variable expenses, like utilities or inventory costs. Don’t forget to add dividend payments and tax payments.

3. Finally, identify any one-time or irregular expenses you expect to incur over the period covered by the forecast. This could include things like significant equipment purchases or expansion projects.

There are three primary resources to collect the figures from, including:

Income Statement

The income statement is the most vital information when forecasting cash flow. The income statement will tell you how much revenue a company has generated over a period of time, as well as how much the cash paid out for business expenses is.

The information can help you predict how much cash a company will have available in the future. You can also use data from the income statement to predict how much money a company will spend in the future, which can help you create a more accurate cash flow forecast.

Balance Sheet

The balance sheet can be a valuable source of information for forecasting cash flow. By looking at the bank balance, creditors and debtors on the balance sheet, you can get an idea of how much cash the company has on hand and will receive or spend in the future.

Bank Statement

The bank statement can be used to forecast regular payments, such as direct debits and standing orders. The statement shows the date of the payment, the amount, and the type of payment. This information can be used to create a schedule of regular payments that can be used to plan future expenses.

Once you have all of this information, you can begin to input it into your cash flow forecast template. Remember to update your template regularly to reflect your current financial situation accurately. With a little bit of planning and foresight, you can use your cash flow forecast template to keep your business on track.

Free Business Accounting Basics Cash Flow Forecasts Templates

To help track your small business cash flow, we have created annual, weekly and daily templates.

All the templates follow the same format, with cash receipts at the top and cash payments below. The bottom rows show the bank balance brought forward, the cash inflow and cash outflow and a balance carried forward.

Instructions for Cash Flow Forecast Use

To complete the Company’s cash flow forecast, follow these simple steps.

  • Decide which template you require and use the free download at the end of this article.
  • Either enter the start date for weekly or daily. On the monthly version, change the months.
  • Enter the opening bank balance on the first balance b/f
  • Create the best income and expenses categories and name them
  • Enter the projected income, and make sure you include cash receipts
  • Enter the cash outflows for both variable costs and fixed costs
  • All the balances are automatically calculated and will show the projected cash flow, which is the opening balance plus all income, less expenses, leaving a net cash flow.
  • If you use the weekly or daily cash flow, change the balance b/f when you start a new week or day for the actual bank balance.

Licence Agreement for Business Cash Flow Forecast Template

By downloading our free templates, you agree to our licence agreement , allowing you to use the templates for your own personal or business use only. You may not share, distribute, or resell the templates to anyone else in any way. 

Annual Cash Flow Forecasts Template

Free cash flow forecast template

Our first template is for cash flow projections for a year on a monthly basis. This is required for a business plan or by banks for loans and overdraft facilities.

By downloading the Cash Flow Forecast template, you agree to our licence agreement , allowing you to use the templates for your own personal or business use only. You may not share, distribute, or resell the templates to anyone else in any way. You will also receive an occasional newsletter with bookkeeping updates, useful information, free resources and offers.

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Cash Flow Statement Template

Weekly cash flow forecasts template.

Weekly cash flow forecast template

Our second template is for cash flow projections weekly, split by week for three months. This is suitable for small business owners that need to track cash on a regular basis to check their financial situation regularly. It is required if a small business is near its overdraft limit.

Cash Flow Weekly

Daily cash flow forecast.

Daily Cash Flow Forecast

Our final template is the daily cash flow forecast for 14 days. It is only needed by small businesses if they are very tight on cash, and the situation might change daily.

Forecast Example

Download our free example; it is a forecast for one year for a computer hardware business.

Cash Flow Example

Cash flow forecast faq, why do i need a cash forecast.

It will show different figures to a profit and loss account. A profit and loss might show a profit for one month, but due to delays in collecting cash, there might not be enough cash to cover the expenses. This information can help business owners plan future expenses and stay on track financially. It can also be used to obtain loans or overdraft facilities from a bank.

How do you Create a Cash Flow Statement?

The easiest way to create a statement is in Excel using a free template, but if you are experienced in Excel, you can easily create one yourself to fit your small business needs.

Can I make Changes to the Cash Flow Forecast Template?

We have left the templates unprotected so you can add rows and columns to extend it.

I’m a new business, how do I get the figures?

As a new business, it is harder to collect the figures but estimate them and note why you have come to the figures.

Are there alternatives to using Excel?

Some of the best accounting software includes cash forecasts. We recommend Xero, QuickBooks or Sage. By using accounting software, you already have the actual figures available, so it helps with the complete process.

Cash Flow Forecast Template Conclusion

Forecasting your small business cash flow can seem daunting, but with the right tools and information, it can be a relatively simple process. We’ve provided a few helpful resources to get started, including free templates for annual, weekly, and daily cash flow forecasts.

With these templates, you can easily track your company’s income and expenses so that you always have a realistic picture of your current financial situation. Stay ahead of the game by planning for future expenditures and keeping tabs on your regular payments using our helpful tips.

By downloading the Excel Cash Book template, you agree to our licence agreement , allowing you to use the templates for your own personal or business use only. You may not share, distribute, or resell the templates to anyone else in any way. You will also receive an occasional newsletter with bookkeeping updates, useful information, free resources and offers.

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About the cash flow forecasting template

A cash flow forecast is the most important business tool for every business. The forecast will tell you if your business will have enough cash to run the business or pay to expand it. It will also show you when more cash is going out of the business than in.

Our cash flow forecasting template is an Excel spreadsheet that you can use to forecast and record cash flow. The worksheet will update your figures as you type.

The template has 4 tabs:

  • example cash flow worksheet
  • details estimated cash flow
  • summary estimate cash flow
  • estimated versus actual results

How to Master Project Cash Flow Analysis

By Andy Marker | September 17, 2020 (updated February 26, 2024)

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In this article, you’ll find the most useful expert advice on analyzing cash flow for a specific project. This skill allows you to determine the worthiness of a potential project or the financial performance of a current one.

Included on this page, you’ll learn how to calculate project cash flow and what a project cash flow analysis can reveal , and find tips and best practices for creating a strong project cash flow analysis , as well as a project cash flow example .

What Is Project Cash Flow?

Project cash flow refers to how cash flows in and out of an organization in regard to a specific existing or potential project. Project cash flow includes revenue and costs for such a project.

Below are some basic principles of project cash flow:

  • It is a crucial part of financial planning concerning a company’s current or potential projects that don’t require a vendor or supplier.
  • Experts sometimes call project cash flow relevant cash flow , which refers to when a company is still deciding whether a project is worth its time. In order to calculate the relevant cash flow of a project, a company analyzes the cash inflows and outflows that would occur if it decided to take on the project. When performing a project cash flow analysis, be sure to exclude all ongoing and non-relevant costs, like office rent or regular salaries.
  • Your project cash flow forecast should include at least monthly increments in order to show project-related costs and revenue, as well as when you will realize those costs and revenue.
  • As mentioned above, a project cash flow analysis is less important if you’re not using outside vendors or suppliers — without external contracts, a project incurs no outside costs. Still, even a project without contractors can benefit from a project cash flow analysis, as the process can help your company quantify the resources it is using for the project.
  • Company leaders should approve a project cash flow and cost benefit analysis before a company decides to take on a project.
  • Periodically, the project manager should compare a project’s cash flow projections with its actual results. Then, you should adjust the plan accordingly.

How to Calculate Project Cash Flow

You can calculate your project cash flow using a simple formula: the cash a project generates  minus the expenses a project incurs. Exclude any fixed operating costs or other revenue or costs that are not specifically related to a project. 

To learn more about creating overall cash flow statements for a business, visit “ The Basics of Operating Cash Flow: Tips, Formulas, and Examples .”

Project Cash Flow Analysis Example

In order to craft your own project cash flow statement, it can be helpful to see an example. Here is an example of a project cash flow statement for a hypothetical project.

Project Cash Flow Statement Hypothetical

You can use the following template to create a project cash flow statement. The template includes space to list revenue and expenses, and allows you to track cash flow for a project over 12 months. The template is free to download and can be customized to fit your needs.

Project Cash Flow Template

Download Project Cash Flow Template

Excel | Google Sheets

Project Cash Flow Forecast

A project cash flow forecast includes cost estimates for a project, as well as a schedule of when you will incur those costs. This forecast also displays the project’s revenue and a schedule of when you will receive that revenue.

Here are some helpful recommendations for tracking project expenses: 

  • Create a Forecast Calendar: Organize your forecast according to the various phases of a project, and then fill in the particulars about your work breakdown structure (WBS) for each phase. In addition, be sure to include project codes for each cost.
  • Include Payment Due Dates: Be sure to input the due dates for payments to suppliers or vendors.
  • Use Supplier/Vendor Terms as a Guide: A supplier’s contract terms will clearly state a payment due date. Use this information for your calendar.
  • Show the True Cost of a Project: You should also include a project’s payroll and other estimated costs in order to obtain a more accurate picture of that project’s total cost.

For the revenue side of your project, you should follow similar practices. For example, be sure to input the dates indicating when a client payment is due to your company. To learn more about cash flow forecasting for an entire business (rather than just for a single project), visit “Cash Flow Forecasting 101.”

Project Cash Flow Analysis

A project cash flow analysis allows you to look closely at the cash inflows and outflows associated with an existing or potential project. The analysis also addresses opportunity costs (i.e., the amount of money your company loses by embarking on a project).

Here are some details to consider when performing a project cash flow analysis: 

  • Sunk Costs: These are costs that your company incurs whether you take on a project or not. Sunk costs generally refer to the fixed costs you incur by running your business, such as rent, overall payroll, research and development, and other expenses.
  • Initial Investments: These investments refer to the cash outlays for the equipment and other assets that you need to execute a project.
  • Incremental Cash Flows: These refer to all the cash inflows and outflows that result from a project, including payments to suppliers and equipment leases.
  • Terminal Cash Flow: This term refers to proceeds from the equipment that you buy and use specifically for a project.
  • Opportunity Costs: This refers to the amount of money your company loses by embarking on a project. For example, participating in a year-long project might require an investment of $50,000 for new equipment. If investing that money otherwise would net you $10,000, then your opportunity costs include that $10,000.

Benefits of Project Cash Flow Analysis and When It's Especially Important

A project cash flow analysis can help a company gain an understanding of the potential cash flow issues associated with taking on a project. Among other things, the analysis can alert you to the possibility of overextending yourself (i.e., taking on too many expenses before a project’s revenue comes in).

The primary benefits of a project cash flow analysis include the following: 

T.J. Liles-Tims

  • A project cash flow analysis can also help you with project contracts that include large upfront payments. “We see that [kind of upfront commitment] in large marketing contracts, wherein a company may be on the hook for ad buys for its client or for outsourced work to a subcontractor," says Barbee.  
  • An analysis can also assist you regarding projects that pay less frequently. "We see this [problem] in a lot of government bids. A company wants to put in the lowest bid, so it gets the work. But, the government does not pay until 45 days after it receives an invoice. So, a business is on the line for a lot of cash” Barbee says. 
  • An analysis can increase confidence and reduce stress. Bissett says that you can do even a simple pencil-and-paper analysis to put yourself at ease: "We're not trying to replace accounting with a project cash flow forecast. We're not creating highly accurate financial records. We're trying to look into the future. It's our best guess… and it allows people to sleep better. “It brings the stress level down to where a client can say, ‘Now, I can quantify my potential problem and deal with it before it hits.’ That's pretty priceless.” Bissett adds that when clients begin to understand the benefits of doing a cash flow analysis and a quick project cash flow analysis, “They begin to change the way they think about their business. Their lens becomes completely different.”

Issues that a Project Cash Flow Analysis Can Highlight

A project cash flow analysis can highlight potential issues and give you time to deal with them.  Issues might include having too many bills due simultaneously or needing clients to pay sooner.

Here are the major ways that a project cash flow analysis can help you adjust to potential issues:

  • Change Your Inventory Buying Schedule: The analysis can help you spread out your inventory purchases over a longer period of time, so you can avoid paying large amounts all at once.
  • Stagger Other Purchases or Bill-Paying Requirements: A cash flow analysis allows you to stagger other bills, so they are spread out over several months.
  • Stagger Other Large Payments: It also allows you to stagger other large payments that are due (e.g., quarterly taxes or annual insurance).
  • Show You the Need for Upfront Payments from Clients: A cash flow analysis can indicate when your project needs a larger down payment from a client. It can also show cases in which subsequent payments should be due sooner. Barbee says that requiring down payments or other types of upfront financial commitments is “a good way of setting your expectations for a client.” How a client responds to such requirements can also reveal how serious and committed they are. “If they don't want to put something down, that could be a red flag,” she says.
  • Change Your Buying Terms: It can give you the opportunity to change the buying terms for some materials, thereby spreading out payments over a longer term.
  • Alert You to the Need for a Loan: The analysis can show you when cash is low and give you time to secure a loan on favorable terms.

Tips and Best Practices for Project-Based Cash Flow Analysis

Experts recommend a number of best practices for performing effective project cash flow analyses, including making sure that you identify project-specific expenses and revenue.

Here are some best practices for creating a project-based cash flow analysis:

  • Identify and Separate the Variable Expenses Related to a Project: Many organizations aren't careful enough about separating the expenses associated with a specific project. "Organizations have a heavy predilection toward commingling the cost of goods with overhead expenses,” says Barbee. When you commingle the two, you “can’t distinguish between variable costs and fixed costs. You have to untangle those first.”
  • Ensure You Understand the Five Stages of Project Cost: For the purposes of a project cash flow analysis, a cost is only a real cost when you’ve paid for it. There are four earlier stages for that type of expense: when you’ve budgeted for the expense; when you’ve committed to making the purchase; when you’ve actually made the purchase and had materials delivered to you; and when you’ve been invoiced for the purchase. 
  • Practice Incremental or Milestone Billing: This means invoicing clients for a portion of work as you reach various project milestones. By doing this, you receive smaller, more frequent payments throughout the project, thereby increasing your cash flow. Practicing this type of billing also means identifying and tracking the hours your staff devotes to a project. Even when your company doesn’t owe an outside supplier for project-related work, you should still understand the hours your employees are spending on a project. Barbee says that you should track those employee hours “even if you’re only charging a flat rate for a project. That way, you can get the analytics.”
  • Assign Loans and Grants to a Project: You might get loans or government grants to do work on a project. Make sure you assign that revenue, and any interest on the loans, to that particular project’s revenues and costs.
  • Make an Accurate Estimate Regarding Expected Staff Hours: Bissett says company owners or project managers with deep expertise in an industry can often perform certain tasks much more quickly than other company staff can. Consequently, owners or project managers might underestimate how long it will take their staff to complete such tasks for a client. “If the owners are excellent at what they do and it takes them an hour to do something, they'll forecast an hour of their team's time,” Bissett says. “But, generally the team is not as strong, so leaders underestimate how long it actually takes to do the job.”

Project Cash Flow Analysis in Project Management

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.

Master Project Cash Flow Analysis with Smartsheet for Project Management

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IMAGES

  1. Free Cash Flow Forecast Templates

    business plan projected cash flow template

  2. How to create a cash flow projection (and why you should)

    business plan projected cash flow template

  3. Cash Flow Statement Template for Excel

    business plan projected cash flow template

  4. 16 Sample Cash Flow Projections Excel

    business plan projected cash flow template

  5. Cash Flow Projection

    business plan projected cash flow template

  6. 4 Steps to Useful Cash Flow Projections

    business plan projected cash flow template

VIDEO

  1. How to Create Cash Flow Statement Template in Excel (Urdu / Hindi)

  2. FP&A: HOW TO PREPARE PROJECTED CASH FLOW WITH PRACTICAL

  3. CASH FLOW STATEMENT T.S.GREWAL CH-4 (Cash Flow From Operating & Investing Activities) QUE NO 30,31

  4. Business Plan , Projected Financial Statements, Free Cash Flows , Cash Flow Statement

  5. HOW TO MONITOR SMALL BUSINESS CASH FLOW EASILY & MANUALLY ? Iwas lugi dapat imonitor mo ng ganito!

  6. How to create Financial Plan

COMMENTS

  1. Free Cash Flow Forecast Templates

    A cash flow forecasting template allows you to determine your company's net amount of cash to continue operating your business. The template provides a way to examine day-by-day, month-by-month, quarter-by-quarter, or year-over-year projected cash receipts and cash payments as compared to your operating expenses and other outflows.

  2. Cash Flow Projection

    Free Cash Flow Projection Template Table of Content Key Takeaways Introduction What Is Cash Flow? What Is Cash Flow Projection? Why Are Cash Flow Projections Important for Your Business? Step-by-Step Guide to Creating a Cash Flow Projection Cash Flow Projection Example 6 Common Pitfalls to Avoid When Creating Cash Flow Projections

  3. How to Create a Cash Flow Forecast and Statement

    Updated October 27, 2023 Download Now: Free Cash Flow Forecast Template A good cash flow forecast might be the most important single piece of a business plan. All the strategy, tactics, and ongoing business activities mean nothing if there isn't enough money to pay the bills.

  4. Business Plan Financial Templates

    The template set includes a 12-month profit and loss statement, a balance sheet, and a cash flow statement for you to detail the current and projected financial position of a business. Download Startup Financial Projections Template Excel | Smartsheet Income Statement Templates for Business Plan

  5. Free Financial Projection and Forecasting Templates

    These free cash-flow forecast templates help you predict your business's future cash inflows and outflows, allowing you to manage liquidity and optimize financial planning. 12-Month Financial Projection Template Download a Sample 12-Month Financial Projection Template for Excel | Google Sheets

  6. 3-year cash flow projection template for easy use

    Using a 3-year cash flow projection template, a projection is made, which serves as a tool for businesses to plan and make informed financial decisions. Purpose of a projected 3-year cash flow for businesses The primary purpose of a projected 3-year cash flow is to provide a forward-looking view of a company's cash position.

  7. Cash Flow Forecasting: A How-To Guide (With Templates)

    Free cash flow forecast template To make this a lot easier, we've created a business cash flow forecast template for Excel you can start using right now. Access Template The template has three essential pieces: Beginning cash balance.

  8. How to create a cash flow projection (and why you should)

    1. Gather your documents This includes data about your business's income and expenses. 2. Find your opening balance Your opening balance is the balance in your bank at the start of a period. (So, if you've just started your business, this is zero.) Your closing balance is the amount in your bank at the end of the period.

  9. Cash Flow Series #2: Building Your 18-Month Cash Flow Forecast

    Part 1: Set goals and fill out your Prep Sheet tab Part 2: Build your cash flow forecasting model (You are here) Part 3: Use your model to make projections Welcome back to our cash flow forecasting series with Jirav!

  10. Cash Flow Forecasting Template

    A forecasting template (also known as a cash forecasting model) is a blueprint that finance teams use for cash flow projection. Typically, the document sets out the key dimensions of a forecast model — the time horizon, time-period granularity, and cash flow categories. The template sets out the key dimensions of a forecast model - the time ...

  11. How To Build A Cash Flow Forecast For Your Startup In 8 Steps

    Remi November 17, 2023 Forecast your business Whether you want to understand what's your breakeven, your valuation or simply create a budget for your business plan, preparing a cash flow forecast for your startup is key. There are a number of options available to you: use a financial model template, a software, hire an expert or do it yourself.

  12. Three-Year Cash Flow Projection Template

    In this task, you will present the final cash flow projection to your stakeholders. This can include investors, board members, or key members of your team. Prepare a presentation that highlights the key findings and insights from the cash flow projection. Demonstrate the impact of the identified risks and the strategies put in place to mitigate ...

  13. Monthly Cash Flow Forecast

    And for the tax-paying months, monthly expenses are $190,800, versus expectations of $175,000. The "Net Change in Cash" is calculated at the bottom by adding the "Total Cash Receipts" to the "Total Cash Disbursements". Expected Net Change in Cash (Non-Tax Months): $90,000. Actual Net Change in Cash (Non-Tax Months): $90,200.

  14. Free Cash Flow Statement Templates

    Free Cash Flow Statement Templates Get free Smartsheet templates By Andy Marker | May 8, 2017 A cash flow statement, also referred to as a statement of cash flows, shows the flow of funds to and from a business, organization, or individual. It is often prepared using the indirect method of accounting to calculate net cash flows.

  15. Cash Flow Projection Business Plan Template

    This cash flow projection business plan template is designed for entrepreneurs, business owners, and financial professionals. It can help them to plan and project cash flows for their businesses, identify potential financial risks, and create a roadmap for the business's financial future.

  16. Cash Flow

    Open the sample statement of cash flow (below) and step through it from top to bottom. This example will serve as a template for your own cash flow statement. The starting point for cash flow is the Net Ordinary Income from the income statement. From there, we'll make adjustments to track actual inflows and outflows of cash.

  17. Business Plan Financials: How to Project Cash Flow

    Standard Business Plan Financials: How to Project Cash Flow No matter what your business planning objectives, cash flow is still the most vital resource in the business, and managing cash is the single most important business function. Without cash, you go under. So I always assume cash flow is included in every kind of real business plan.

  18. Cash flow projection template

    Here's how to do a cash flow projection in Excel: Step 1: Download cash flow projection Excel template. Step 2: Estimate your monthly sources of cash. Step 3: Estimate all your expenses each period related to company operations and overhead. Step 4: Totals in the template will be automatically calculated. Step 5: Verify your cash projection.

  19. Business Plan Financial Projections Template

    Explore our comprehensive workflow for creating accurate and robust business plan financial projections, factoring in various economic scenarios and industry standards. 1. Identify financial requirements and objectives. Draft projected income statement. Detail projected balance sheet. Calculate projected cash flow statement.

  20. Cash Flow Forecast Template

    1. Review your current financial situation Before you can forecast your cash flow, you must understand your current financial situation well. It includes tracking your income and expenses for the past several months and knowing your business' sales trends. 2. Use historical data to make assumptions about future cash flow

  21. How To Create Financial Projections for Your Business Plan

    Collect relevant historical financial data and market analysis. Forecast expenses. Forecast sales. Build financial projections. The following five steps can help you break down the process of developing financial projections for your company: 1. Identify the purpose and timeframe for your projections.

  22. Cash flow forecasting template

    It will also show you when more cash is going out of the business than in. Our cash flow forecasting template is an Excel spreadsheet that you can use to forecast and record cash flow. The worksheet will update your figures as you type. The template has 4 tabs: example cash flow worksheet. details estimated cash flow. summary estimate cash flow.

  23. Project-Based Cash Flow Analysis Guide

    You can use the following template to create a project cash flow statement. The template includes space to list revenue and expenses, and allows you to track cash flow for a project over 12 months. The template is free to download and can be customized to fit your needs. Download Project Cash Flow Template Excel | Google Sheets

  24. Coffee Shop Financial Plan and Budget Control

    Coffee Shop Financial Plan and Budget Control. This Excel model is a highly adaptable and user-friendly tool for creating a 10-year rolling 3-statement financial projection (Income Statement, Balance Sheet, and Cash Flow Statement) with a monthly timeline.