business plan cash flow projection

How to Create a Cash Flow Forecast

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:

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:

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:

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

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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• Cash Flow Projection – The Comple...

Cash Flow Projection – The Complete Guide

Table of Content

Key takeaways.

• Cash flow projection is a vital tool for financial decision-making, providing a clear view of future cash movements.
• Cash flow is crucial for business survival and includes managing cash effectively and providing a financial planning roadmap.
• Automation in cash flow management is a game-changer. It enhances accuracy, efficiency, and scalability in projecting cash flows, helping businesses avoid common pitfalls.

Introduction

Cash flow is the lifeblood of any business. Yet, many companies constantly face the looming threat of cash shortages, often leading to their downfall. Despite its paramount importance, cash flow management can be overwhelming, leaving businesses uncertain about their financial stability.

But fear not, there’s a straightforward solution to this common problem – cash flow projection. By mastering the art of cash flow projection, you can gain better control over your finances and steer your business away from potential financial crises. Cash flow projections offer a proactive approach to managing cash flow, enabling you to anticipate challenges and make informed decisions to safeguard the future of your business.

If you’re unsure how to accurately perform cash flow projections or if you’re new to the concept altogether, this article will explain everything you need to know about cash flow projections – to help you confidently navigate the financial landscape of your business.

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.

Read more to uncover a step-by-step guide on how to perform a cash flow analysis (template + examples) and methods to assess key items in cash flow statements.

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.

Cash Flow Projection vs. Cash Flow Forecast

Having control over your cash flow is the key to a successful business. By understanding the differences between cash flow statements and projections, small business owners can use these tools more effectively to manage their finances and plan for the future. 

Discover the power of HighRadius cash flow forecasting software ,designed to precisely capture and analyze diverse scenarios , seamlessly integrating them into your cash forecasts. By visualizing the impact of these scenarios on your cash flows in real time, you gain a comprehensive understanding of potential outcomes and can proactively respond to changing circumstances.

Here’s how AI takes variance analysis to the next level and helps you generate accurate cash flow forecasts with low variance. It automates the collection of data on past cash flows, including bank statements, accounts receivable, accounts payable, and other financial transactions, and integrates with most financial systems. This data is analyzed to detect patterns and trends that can be used to anticipate future cash flows. Based on this historical analysis and regression analysis of complex cash flow categories such as A/R and A/P, AI selects an algorithm that can provide an accurate cash forecast.

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. 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.

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 the repayment of borrowed funds.
• 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.

How to Calculate Projected Cash Flow?

To calculate projected cash flow, start by estimating incoming cash from sources like sales, investments, and financing. Then, deduct anticipated cash outflows such as operating expenses, loan payments, taxes, and capital expenditures. The resulting net cash flow clearly shows how much cash the business expects to generate or use within the forecasted period. 

Calculating projected cash flow is a crucial process for businesses to anticipate their future financial health and make informed decisions. This process involves forecasting expected cash inflows and outflows over a specific period using historical data, sales forecasts, expense projections, and other relevant information. Regularly updating and reviewing projected cash flow helps businesses identify potential cash shortages or surpluses, allowing for proactive cash management strategies and financial planning. 

Benjamin Franklin once said, ‘Beware of little expenses; a small leak will sink a great ship.’ This underscores the importance of managing and understanding cash flow in business. 

Download this cash flow calculator to effortlessly track your company’s operating cash flow, net cash flow (in/out), projected cash flow, and closing balance.

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:

• Avoid overly generous sales forecasts that can undermine projection accuracy.
• Maintain a realistic approach to sales projections to ensure reliable cash flow projections.
• 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.
• 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.
• 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.
• 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.

• 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. Whether you are an enterprise or an SMB, learn how a 13-week cash flow projection template can help you keep your business on track and achieve your financial goals.

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 instill 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.

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. 

Cash Flow Projection FAQs

1) 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.

2) What is projected cash flow budget?

A projected cash flow budget is a financial statement that estimates the amount of cash your business is expected to receive and pay out over a specific time period. This information can be helpful in determining whether your business has enough cash flow to maintain its regular operations during the given period. It can also provide valuable insight into how to allocate your budget effectively.

3) 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.

4) What is projected cash flow and fund flow statement?

Projected cash flow statement forecasts cash inflows and outflows over a period, aiding in budgeting and planning. Fund flow statement tracks the movement of funds between sources and uses, analyzing financial position. Both provide insights into a company’s liquidity and financial health.

5) 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.

6) What is the cash flow projection ratio?

The term cash flow projection ratio is not a commonly used financial ratio. However, various ratios like operating cash flow ratio, cash flow margin, and cash flow coverage ratio are used to assess a company’s cash flow generation and management capabilities.

7) What is the formula for projected cash flow?

The projected cash flow formula is Projected Cash Flow = Projected Cash Inflows – Projected Cash Outflows . It calculates the anticipated net cash flow by subtracting projected expenses from projected revenues, considering all sources of inflows and outflows.

8) What are the advantages of cash flow projection?

Cash flow projection helps businesses:

• Anticipate future financial needs
• Manage cash shortages effectively
• Make informed decisions
• Ensure stability and growth
• Provide a roadmap for financial planning
• Stay proactive in managing finances

Related Resources

A Strategic Approach to Make Cash Forecasting Foolproof and Fit for the Future

Cash Forecasting Maturity Model

Mastering Treasury Risk Management: Proven Strategies for Effective Risk Handling

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Creating a cash flow projection

In less than an hour a month, you can identify potential cash shortfalls — and surpluses — in your business’s future.

Even businesses with healthy growth and strong sales run the risk of owing more than they can pay in a given month. Fortunately, spending less than an hour each month on a cash flow projection can help you identify potential cash shortfalls in the months ahead.

Before you create a cash flow projection for your business, it’s important to identify your key assumptions about how cash flows in and out of your business each month.

Identifying some key assumptions

For your cash flow projection, make assumptions in two key areas:

• Receivables: These assumptions should outline how quickly you receive payment from your customers. For example, if most of your customers pay you within 30 days, a key assumption could be: 90% of sales will be collected the month after the sale.
• Payables: These assumptions should outline when your payments are due. For example, if your vendors require payment within 2 weeks of delivery, a key assumption could be: Payables are due within 14 days of purchase.

Drafting your cash flow projection

With these realistic assumptions in hand, you can begin drafting your cash flow projection. To get started, create 12 columns across the top of a spreadsheet, representing the next 12 months. Then, in another column on the left-hand side, list the following cash flow categories and enter the appropriate amount in each column for each month (see descriptions below):

• Operating cash, beginning: The amount of money you’ll have at the beginning of each month.
• Sources of cash: All money coming in each month (receivable collections or direct sales, loans, etc.).
• Total sources of cash: Add the amounts in the “Operating cash, beginning” row to the amount in the “Sources of cash” for each month.
• Uses of cash: List every likely expense your business may incur, such as payroll, accounts payable to vendors, rent and loan payments, etc.
• Total uses of cash: Tally all your expenses so you can see exactly what will be going out the door each month.
• Excess (deficit) of cash: This is the number that counts. If you see positive numbers across the board, congratulations! You may have some extra dollars to invest back into your business. If you see a negative number for one of the months, don’t panic: You have time and options to prepare your business.

Sample cash flow projections

Here is an example of a cash flow projection that has been abbreviated to 4 months for the sake of simplicity:

XYZ Company, LLC Internal Cash Flow Projections August to November

Operating cash, beginning

Sources of cash, uses of cash.

*The company is projecting negative cash in November. What can you do today to prevent the negative cash flow?

Key assumptions :

• 75% of sales will be collected the month after the sale.
• 25% of sales will be collected the 2nd month after the sale.
• Payables are due in 25 days.
• 60% of eligible receivables can be used for the revolving line of credit.

Strategies to improve accuracy

As the months pass and you compare your monthly cash flow statements to your projections for each month, the numbers should match up. A 5% variance one way or the other can be okay, but if it starts being more than 5%, you should revisit your key assumptions to check for flaws in your logic. Even if your actual numbers come in higher than your projections, you should take a close look at your assumptions, because higher returns in the short term could lead to shortfalls later on. Keep in mind that lenders often use your cash flow and liquidity ratio to assess a company’s financial health.

To make sure your projection stays accurate throughout the year, be sure to consider these variable expenses.

• Months with three payrolls
• Months when insurance premiums are due
• Increased estimated taxes due to increased sales

Continue to refine your projection

To keep your cash flow projections on track, create a rolling 12-month plan that you update at the end of each month. If you add a new month to the end every time a month is completed, you’ll always have a long-term grasp of your business’s financial health.

However, don’t try to project more than 12 months into the future. It can be time consuming and variables can change. Prime rates could go up, for example.

Once you’ve gotten into the habit of using a cash flow projection, it should give you added control over your cash flow and a clearer picture of your company’s financial health. For additional support, make an appointment to talk to a banker.

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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.

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

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.

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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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.

I am the text that will be copied.

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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Preparing a cash flow forecast: Simple steps for vital insight

One of the questions we’re often asked by small business owners is, “how do I prepare a cash flow forecast?” It’s an important part of financial planning for any business. But, if you’re an entrepreneur or founder, you may not have an accounting or finance background.

It’s really simple to create your own forecast. And once you know how, it will become one of the most important pieces of insight into your business you have.

Why is a cash flow forecast important?

Cash flow planning is essential: you need cash in the bank to pay your bills. Staying on top of your cash flow will help you see if you’re going to run out of money - and when - so you can prepare ahead of time. Perhaps it will show you that you need to cut overheads, find new investment, or spend time generating sales.

On the flip side, you might be doing well, and you’re considering expanding into new markets, investing in new products, taking on bigger premises, or recruiting new staff. Having accurate cash flow projections will help you see if you can afford to take the plunge.

Four steps to a simple cash flow forecast

One option is to use free financial forecasting software online, which can help you plan ahead for the next week, 30 days, or six weeks. Or you can follow the four steps below to build your own cash flow forecast.

1. Decide how far out you want to plan for

Cash flow planning can cover anything from a few weeks to many months. Plan as far ahead as you can accurately predict. If you’re well-established, you might have a predictable sales pipeline and data from previous years. If you’re a new business, you might not have a huge amount of data - so the further out you go, the less accurate your predictions will be.

Don’t worry too much if you can’t plan far ahead. Your cash flow forecast can change over time. In fact, it should. As things change, or you get more exact estimates, you can update your plan.

2. List all your income

For each week or month in your cash flow forecast, list all the cash you’ve got coming in. Have one column for each week or month, and one row for each type of income.

Start with your sales, adding them to the appropriate week or month. You might be able to predict this from previous years’ figures, if you have them. Remember though, this is about when the cash is actually in your bank account. Put the figures in for when you know clients will pay invoices, or bank payments will clear.

Also remember to include all non-sales income, for example:

• Tax refunds
• Investment from shareholders or owners
• Royalties or licence fees

Add up the total for each column to get your net income.

3. List all your outgoings

Now you know what’s coming in, work out what you’ve got going out. For each week or month, make a list of all the money you’ll be spending, for example:

• Raw material
• Bank loans, fees and charges
• Marketing and advertising spend

Once you’ve listed everything you spend, add up the total for each column to get your net outgoings.

4. Work out your running cash flow

For each week or month column, take away your net outgoings from your net income. That will give you either a positive cash flow figure (you’ve got more cash coming in than you’re spending) or a negative cash flow figure (you’re spending more than you’ve got coming in).

You can then keep a running total, from week to week, or month to month, to get a picture of your cash flow forecast over time. Too many negative weeks might spell trouble, and you’ll need to do some forward-planning to make sure you can meet your commitments - e.g. paying salaries, loan payments, and rent. Equally a few positive months might signal that you’ve got money to expand or invest.

Jenni Chance

Senior Manager, Entrepreneurial & Private Business, PwC United Kingdom

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Treasury Management

Even as treasury teams evolve to take on more strategic roles, their core responsibility remains the same: to know how much money a business has, where it’s held and how to maximize use of funds so the business gets the most out of its money.

To gain insights into liquidity , treasury needs a well-defined approach to cash positioning and cash forecasting. These processes—which are distinct but closely related—are essential to daily financial operations and decision-making for companies of all sizes and structural complexities.

At a high level, cash positioning and forecasting can help businesses maximize investments, minimize expenses, map out expansion plans and much more.

What is cash positioning?

Cash positioning is the practice of aggregating daily account balance and transaction information in a single place to ensure there are enough funds to cover daily operating needs. That may be an Excel spreadsheet or treasury management technology that includes tools for cash flow planning.

Why is it important? The value of cash positioning can be expressed on two levels:

• It helps to ensure the business has visibility across organizational cash levels and the funds to meet obligations.
• It provides a snapshot of liquidity that’s easy to digest and access, helping business leaders make informed decisions that get the most out of their funds.

What does the process entail? Many businesses use Excel for cash positioning, even billion-dollar companies. That means every business—regardless of its size—has the ability to conduct daily cash positioning.

To start, here are some things to consider:

Identify all accounts, including those used for payroll, domestic and international operations, or by specific business segments. Prominently showing key accounts with the most activity is best practice.  

Create a worksheet or template that reflects how your business manages your cash and funding. Determine the right level of detail necessary to create the position without making it an onerous process.

Aggregate critical data such as opening and available balances, expected inflows/collections and expected outflows/payments, potentially categorized by transaction type.

Leverage technology solutions to automate the data pulls from both your bank and your internal systems.

Title: Current Day Cash Position: Date

Bank Account # Account Name Currency 

Second Row:  Opening Balance

Third Row:  Collections:

Fourth Row: Checks / Lockbox

Fifth Row: Credit Card Settlement

Sixth Row:  Payments:

Seventh Row: AP ACH

Eighth Row: Wires

Ninth Row: Payroll

Tenth Row:  Ending Position (Excess / Shortage)

First Column: Account A

Second Column: Account B

Third Column: Account C

What are some of the key benefits of cash positioning?

The resulting current visibility into liquidity helps allow companies to:

• Make more informed decisions: Cash positioning eliminates guesswork. Business leaders can reference current data to know exactly what they’re working with, which leads to more efficient and informed decisions on their use of available cash.
• Reduce extraneous costs:  Even if businesses have money in a broad sense, if it’s not in the right account, there could be operational disruptions. Cash positioning can help mitigate the potential for overdraft fees, unnecessary borrowing or extra wires.
• Improve risk management: Knowing where your cash is held allows you to better manage your counterparty risk and ensure that as much of your cash as possible is held with trusted financial institutions, while also allowing you to adjust those exposures as necessary.

Refining cash positioning processes

Excel can be sufficient for cash positioning in some situations, but it can also be time-consuming. As your business grows or adds complexity or more accounts, you may want to explore ways to automate cash positioning and mitigate risk, save time and free up personnel to do more valuable tasks than manual data entry. Options may include:

• Bank-provided Excel API plugin : Some banks offer an API that automatically pulls daily balances and transactions for easy input. Tools like Access Insight from J.P. Morgan Access can save treasury teams time when aggregating data.
• Cash positioning software : Several enterprise resource platform (ERP) solutions and treasury management systems (TMS) come equipped with cash positioning tools. They can be used with Excel, or as a substitute.
• Multibank reporting : Cash positioning software may also offer multibank reporting, which consolidates data across banks and delivers it through a single portal—something Access can do. This service can save additional time in the positioning process.

What is cash forecasting?

It’s a way to estimate future cash levels over a specific and longer period of time using anticipated inflows and outflows.

These forecasts can be used for short- or mid-term planning, and assist with treasury objectives like debt management, funding, cash repatriation, investment and enablement of business growth.

There are two general approaches to cash forecasting:

• Bottom up starts with granular data (commonly gained from daily cash positioning) and extrapolates that into future performance. This generally requires relationships with other business units (e.g., human resources, legal and finance) to supply information.
• Top down leverages historical data and broader assumptions to work down to projected cash levels. Treasury teams can use cash flow statements, previous budgets and receipts to inform the forecast.

What are the benefits of cash forecasting?

Forward-looking cash flow projections can help companies accomplish a number of goals, including:

Short-term and mid-term strategic planning:  Planning on new market expansion? A new product line? Share buybacks? Cash forecasting can provide the liquidity baseline needed to carefully plan for these efforts.

Optimized cash usage:  Cash forecasting can help companies more accurately determine whether they have sufficient cash available. With this information, treasury can more efficiently deploy or pool funds so that cash is not sitting unused or trapped in complex structures.

Foreign exchange insights: Cash flow forecasts help companies examine their short-term foreign exchange exposure. This, in turn, allows them to prepare for FX volatility and mitigate "trapped cash" risks.

How we can help

Contact J.P. Morgan or your banking relationship team for more information about our treasury services and how they can help your cash positioning and forecasting efforts.

© 2022 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. Member FDIC. Visit jpmorgan.com/cb-disclaimer for disclosures and disclaimers related to this content.

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How to Create Cash Flow Projections: Step-by-Step Guide

Ask any experienced business owner what the most important factor is in staying afloat as an early-stage company, and nine times out of ten you’ll hear two words:

Think about it. You’ve got operating expenses coming out of your ears, from wages to equipment purchases to tax bills, and if you don’t have enough cash coming in to pay those expenses? Well, you know the rest.

So, what can you do to manage cash flow, short of doubling down on your sales efforts to get that cold hard cash pouring in?

You create (and keep creating) cash flow projections. That’s what.

In this article, we’ll show you exactly why cash flow projections are so crucial and guide you through the process of projecting cash flow for your business.

Table of Contents

What Is a Cash Flow Projection?

Let’s start from the top.

Cash flow is the net balance of cash you have coming in and out of your business across a specified timeframe. So, your monthly cash flow is the amount of cash you have moving into and out of your company that month.

That one’s easy to calculate, as you’ve got real-life figures from the last month to use.

A cash flow projection (or cash flow forecast), looks forward to the coming month (or months, or quarter, or whatever time period you want to create a forecast for), and makes an estimate of what cash flow will look like.

While a cash flow projection is an estimate, you’re not exactly plucking numbers out of thin air.

You’re going to use actual figures: your accounts receivable (cash inflows from your customers) and accounts payable (cash outflows—cash you’re going to have to pay during that period for expenses, such as employee salaries).

Okay, so far so good. So, why should you care?

Why Are Cash Flow Projections Important to Understand?

Okay, so there are a few obvious answers here.

You need to know how much cash is coming in so you can:

• Ensure they’ve got enough money in the bank to pay for upcoming expenses
• Deliver on future growth projections
• Make informed business decisions on future monetary investments

Simply put, projecting potential cash shortfalls is the best way to proactively avoid them. Or if you project cash surpluses, you can plan on how to best use it.

But what you’re probably thinking is “Doesn’t my profit and loss statement tell me this information? Why do I need to spend time creating a whole other financial projection ?”

The problem with profit and loss statements or income statements (in terms of making estimates of future cash flow) is that they don’t fully represent cash in the bank.

Here’s what we mean:

Regular expenses (things like utility bills, rent, and employee wages) reduce your profitability, and you’ll see these expenses on your profit and loss statement.

But some business spending (like new business assets or other capital expenditures) doesn’t reduce profitability and isn’t included in the P&L statement. You’ll find these typically recorded on the balance sheet.

That means your business can have heavy cash outflows for various startup costs (loading up on inventory, for example) and still look profitable on paper, even though you have negative cash flow.

A similar situation exists on the revenue side of your profit and loss statement.

When your company makes a sale and invoices a customer, this counts as additional revenue in your P&L, even if you don’t have the cash in the bank yet.

Remember: different financial statements capture different aspects of your financial health. It’s by piecing them together that you understand the full story of your business.

So, the short of it is this:

Even a basic cash flow projection is important for businesses to use and understand because, unlike other financial reports and statements , they tell you exactly what your cash levels are, what you’ve got coming in, and what you’ve got going out.

With this you can make accurate, informed decisions and ensure you meet important financial obligations like employee salaries and debt repayments.

How to Create a Cash Flow Projection in 5 Steps

1. start with your opening cash balance.

This step is nice and easy. Head into your banking app or financial planning platform, and grab your total cash balance across all bank accounts or other cash accounts.

This is the “opening balance” for the period of your cash flow projection. In this example, we’re going to do a monthly cash flow projection, so the opening balance is the closing balance of the previous month.

Pro Tip: Want to skip all of these manual steps? Check out Finmark from BILL!

2. Calculate Your Receivables

Now, you’ll need to estimate the amount of money you’re going to receive for the upcoming month—your anticipated positive cash flow. Don’t forget to include other sources of cash beyond sales revenue.

Here’s where to pull this data from:

• Sales of your product and/or services (usually tracked as Accounts Receivable). Be sure to only include balances, or immediate cash sales, that are due within the period you’re creating the cash flow projection for.
• New loans or investments. If you’re currently applying for a loan or raising funding that you expect to receive next month, that’s incoming cash to be included here.
• Sales of assets. If you’re selling any business assets that you expect to receive payment for in the upcoming month, include that amount.
• Other income , such as interest income.

If you use Finmark , we handle all of these calculations for you!

3. Calculate Your Payables

Now, we’re going to do the exact same thing but for your negative cash flow.

Typical expenses to include in your cash flow projection include:

• Employee wages and salaries
• Rent or lease fees
• Software subscriptions
• Tax payment
• Utility bills
• Seasonal expenses
• Asset purchases
• Marketing and advertising costs
• Loan repayments
• Licence fees
• Franchise fees

Note: There are two types of expenses— fixed and variable expenses . Fixed expenses are easy to project because they’ll likely be the same every reporting period. But variable costs will take some estimating to figure out.

4. Apply the Cash Flow Formula

Now, you simply subtract your total payables from your total receivables—or negative cash flow from positive cash flow.

Cash flow formula: Cash flow = Total receivables – Total payables

Here’s a quick cash flow projection example: let’s say our receivables for next month totals $26,000, and our payables totals $15,000. Our cash flow formula would look like this:

$26,000 – $15,000 = $11,000

Meaning our cash flow for the month is $11,000.

Your cash flow prediction can also be negative if the payables are higher than the receivables. If in the above example, our payables for the month total $32,000, then our cash flow projection would look like this:

$26,000 – $32,000 = ($6000)

5. Add Your Opening Balance to Determine the Closing Balance

If you’d like to determine your closing balance for the cash flow period, simply add your cash flow amount to the opening balance.

So, if our cash flow for the month is $11,000, and we had an opening balance of $4,000, then our closing cash balance will be $15,000.

Calculating the closing balance is important as this becomes your opening balance for the next month, so it’s helpful if you’re creating cash flow projections for several upcoming months in advance (a reasonably common approach).

Tips and Tricks for Creating Cash Flow Projections

Ready to create your first cash flow projection? Before you jump in, let’s discuss a few helpful tips to make sure you create the most reliable and helpful forecasts possible.

Leverage Historical Data for the Most Accurate Projections

Unsurprisingly, the best picture of future cash flow is your historical and current cash flow. Where possible, you should use the data you have on hand to inform your calculations.

For example, let’s say you’ve been in business for over a year, so you have a full 12 months’ worth of data on your utility bills. Use this to inform your estimate of what that expense will look like next month.

If you’re projecting for May, say, then look at what May’s bill was like last year.

Was it higher or lower than April (seasonal variability is important to keep in mind)? Has your bill been trending upward over the last 12 months (perhaps you’ve been continuing to increase production)? If so, work this insight into your expense estimate.

For cash receipts, you want to account for any seasonality in your sales. Again, the answer lies in your historical data. If your sales slow down in summer, assume that trend continues.

Look at past financial statements (including cash flow statements) to get a full picture of what your cash flow over a period of time was and what you can expect it to be.

Use Conservative Estimates

While we want to use hard data where possible, there are going to be expenses that you just have to estimate.

You know how much you’re paying your employees, for example, so that’s pretty hard and fast.

But like in our previous example, where we needed to calculate next month’s utility expense, there’s a bit of estimation involved.

So, when you are estimating revenue and expenses, use conservative figures.

Consider a range for each revenue and expense line, and use the most conservative amount (lowest for future income, highest for expenses) in your projection. This will prevent you from getting into hot water by overcommitting yourself to spending based on an overzealous cash flow projection.

The best solution, however, is to use a scenario planning platform to generate multiple cash flow projections that give you an idea of what cash flow will look like in various situations (for example, comparing your high revenue estimate with your low revenue estimate).

We recommend your cash flow planning involves modeling these three scenarios:

• Base/Average scenario: This is your “business as usual” cash position scenario where you assume revenue and expenses will remain at a steady rate.
• Upside scenario: This is your best case scenario where you assume faster revenue growth and steady (or slightly lower) expenses. Use this to set plans for what you’d do with that extra cash.
• Downside scenario: This is your “worse case” scenario where you assume slower or declining sales figures with steady, slightly increasing, or unforeseen expenses.

Learn more about creating and analyzing scenarios in this article .

You can do this all in Finmark by the way .

Don’t “Set and Forget”

Cash flow projections aren’t a “one and done” kind of operation. The forecasting process requires you to review the information regularly.

As the month (or whatever period you’re projecting for) progresses, you’re going to have more and more accurate data for revenue and expenses, as cash flows in and out of the business.

Use this information to edit and iterate on your cash flow projection, keeping your estimates as accurate as possible throughout the month. By updating your projections on a regular, ongoing basis, you can see where your assumptions were right or wrong.

The goal is to see when things start to stray from your projection. Once your actual cash flows are recorded, you can adjust your strategy. Maybe you have cash surpluses that can be put to work or a cash deficit you need to adapt to avoid.

Use Automation to Build Projections Faster!

Though you can create detailed cash flow projections manually, savvy business owners prefer to use financial planning platforms ( you know, like Finmark? ) to create and manage these financial reports.

Here’s an example of what our cash flow report looks like, and you don’t have to do a bunch of data entry into a spreadsheet to create it. Finmark automatically pulls in your data and handles all the calculations for you.

Ready for More Accurate Cash Flow Projections?

By this point, you should have a pretty strong understanding of why accurate cash flow forecasts are so important to comprehend (and use). You know how they work, and how to create one for yourself.

But here’s the thing:

Cash flow forecasting is only one piece of the puzzle.

You need to create and analyze a variety of financial reports, statements, estimates, and projections, all of which are made easier when you have an effective and intuitive financial planning platform on your side.

Yeah, that’s us.

Start a free trial of Finmark today , and let us show you how we can transform your financial planning experience.

This content is presented “as is,” and is not intended to provide tax, legal or financial advice. Please consult your advisor with any questions.

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Cash flow projections: What they are and why you need them

It’s easy to assume that if your business is healthy today, it’ll be healthy tomorrow. But while optimism is important, so is understanding where your business stands financially–both now and in the future.

Monitoring your cash flow and knowing how to run periodic cash flow projections can help prevent future money troubles. If you’re new to cash flow projections, this guide will walk through what you need to know. Keep reading or use these links to jump to a specific part of the guide:

What is a cash flow projection?

Why is cash flow projection important.

• Cash flow projections vs. cash flow forecast

How to perform a cash flow projection

• Benefits to cash flow projections
• Using cash flow projections to predict success

Cash flow projections predict the amount of money entering and leaving your small business. As the name suggests, this method uses cash flow to anticipate future business performance. And  cash flow  is the net amount of cash and “cash equivalents” that transfers in and out of your business.

This transfer occurs through accounts payable and accounts receivable. Accounts payable is money out, while accounts receivable is money in.

Cash is the lifeblood of a business. Businesses require cash flow to operate, and in the long term, negative cash flow can lead to a variety of issues for a business.

Most businesses face cash flow problems at some point.  A survey by QuickBooks found that 60% of small business owners reported that cash flow has been a problem. But if your business experiences negative cash flow, it may be easier to manage if you’ve had time to plan in advance. That’s where cash flow projections can help.

Many business owners mistakenly gauge their business’s health by looking at their business value in assets, intellectual property, and so on. But while these are important for attracting investors or selling your business, they won’t help you predict future business performance. They’re also not factored into cash flow calculations.

Running regular cash flow projections is important because it can help you steer your business toward the future. Rather than making critical plans based on present circumstances, cash flow projections use historical data to help you make a plan for the future, which can be more accurate. The right tools can help you generate accurate cash flow forecasts without requiring manual calculations or spreadsheets to create projections.

Cash flow projection vs. cash flow forecast

Essentially, cash flow projections and cash flow forecasts are the same thing. Both are methods for projecting the business’s financial future. Small business owners can use the terms interchangeably.

Small business owners should take the time to understand their cash flow. Not just to build a solid cash flow projection, but so they can recognize areas of opportunity and potential shortfalls. Follow these steps to perform a month-by-month, year-long cash flow projection. Or use them as a jumping-off point for further talks with your bookkeeper, regarding cash flow projections.

1. Estimate your sales

The first step to creating an accurate cash flow projection is to estimate your sales. Start by looking at last year’s numbers using your financial statements. These can help you predict the amount of cash that may come into your business each month next year. You’ll find your business’s credit and cash sales on your monthly income statements. But while the past is the best indicator of the future, you’ll also want to consider some changes.

For instance, if a competitor is moving into your territory, you may want to decrease your sales forecasts. But if you’re adding a new product or service to your offerings, you might expect a slight bump in cash inflow, at least in the short-term.

If you own a new business and don’t yet have a sales history, you will have to use industry research to create a reasonable sales forecast . Be sure to estimate sales for each month, not just the year.

2. Calculate when you will be paid based on the terms you offer

If you operate a business that does mostly cash sales or takes instant payment from customers, you may skip this step.

This step is for business owners who extend credit lines to their customers, send invoices, or take multiple customer payments for a single sale. The idea is to estimate when you will actually receive cash from your sales. To do that, you’ll want to calculate your days sales outstanding (DSO).

The DSO formula first divides your monthly accounts receivable by your total sales. Then it multiplies that number by the number of days in the month. The DSO formula follows:

(Monthly accounts receivable ÷ total sales) x days in the month = DSO

The DSO will tell you the average number of days it takes to receive payment from customers. So if you offer something like 30-day payment terms to your clients, the DSO will tell you how long it actually takes, on average, to receive payment. Then you can incorporate that number into your estimates.

3. Estimate your fixed and variable expenses

Next, you’ll need to estimate both your fixed and variable expenses monthly. Your fixed expenses (rent, employee salaries, insurance, etc.) don’t change.

Variable expenses tend to fluctuate with your sales. For example, your shipping costs vary because they depend on how many products you sell and ship. Your packaging, raw materials, commissions, and labor costs may also go up and down with your sales volume.

Just as you did for sales, you will need to estimate your fixed and variable expenses for each month of the next year. If you have someone like an accountant in charge of your accounts payable , they’re a great resource here. They can help you go through your sales records and estimate what your next year could look like.

If you don’t have someone who can help you with this process, you can tackle it yourself. Start a spreadsheet with columns for fixed costs and variable costs, and tally them up. Your variable costs will likely be a little trickier since you’ll have to break down many pieces. These pieces include things like material costs, labor costs, product costs, etc. If you’ve calculated your breakeven point , you can pull most of this information from there as well.

4. Put it all together

Now that you’ve calculated all the numbers you need, it’s time to put them together. Here’s how to run your current month’s projected cash flow.

Begin with the cash balance from last month’s operations, then add this month’s projected receipts, accounting for your DSO. Next, subtract your projected expenses. The formula follows:

(Last month’s cash balance + current month’s projected receipts) – projected expenses = current month’s projected cash flow

Once that’s done, you can calculate your projected cash flow for next month or the next 12 months. To do this, carry the balance from this month’s projected cash flow to the next month, and repeat the steps above. Do this for the next 12 months.

If you find yourself feeling overwhelmed, it may help to use accounting software to automate the process of generating cash flow projections. Some experts also recommend that business owners create a best-case and worst-case scenario to get the most realistic cash flow projection. Your actual cash flow will likely be somewhere in the middle.

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4 benefits to cash flow projections

Once you know how to create a cash flow projection, you’ll find plenty of benefits to measure future performance this way.

1. Understand your money and where it goes

For many small business owners, cash on hand doesn’t last long. Bills and unexpected emergencies can drain your business’s cash balance and derail your business growth. That’s why it’s critical to know when to pivot and when to stay the course.

A cash flow analysis can help you determine any consistent causes of negative cash flow. And, hopefully, show you when, historically, you have enough cash in your bank account to invest or spend. From there, a cash flow projection can help you understand and predict future cash inflow and cash outflow.

2. Make more confident business decisions

QuickBooks found that nearly three in five small business owners (59%) report that they have made a poor business decision due to concerns about insufficient cash flow. Cash flow projections don’t just increase your understanding. They also help you act with confidence. 

Knowing how your business will perform in the coming months, based on actual cash flow data, can enable you to make informed decisions. You can say with confidence if now is a good time to invest in a new opportunity or put money aside. For instance, you may find that, right now, you’re in a period of negative cash flow. But if the coming month looks positive, there’s less need to postpone investments.

3. Convince others to trust your plans

Budgets help you stay on course, but cash flow projections show you and others where your business is going. Outsiders—even insiders sometimes—need to know your business’s financial health is sound. Cash flow statements and cash flow forecasts can work together to help them understand your business’s current and future performance.

Accurate financial statements and cash flow forecasts may help you secure a business loan when you’re ready to grow your business. A solid cash flow projection may help you gain future investors or win a new business contract. It could also make your company more attractive to buyers.

4. Prevent problems before they arise

While cash flow projections can’t always predict events, they can help you prepare for the worst. For instance, let’s say you know when your business is most cash flow positive. That’s a great time to put aside some extra savings in an emergency fund. Then, if there’s a hiccup, you have a cushion to prevent negative cash flow.

Another example is unpaid invoices. A cash flow projection might tell you there’s a time when those outstanding payments tend to stack up. If you know that problem is likely to occur, you may prevent it with additional communications or early payment incentives.

Use cash flow projections to predict success

Cash flow projections are fairly straightforward but incredibly useful. It can be a bit sobering to see your actual cash flow, but this information can only help you make better decisions and grow your business responsibly.

Make cash flow forecasting a part of your business routine, and forecast at least once a year to stay on top of any changes. You can be more in tune with your business and confident in where you’re going.

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Cash Flow Projection: What Is It and How to Do It

• Written by Rob Biedron
• 19 min read

Money may not actually make the world go ’round, but it certainly spins the wheels of commerce. And whether you’re a small business owner or working at a large corporation, ensuring you have a sufficient cash balance to cover your obligations while still having enough left over for innovation, investment, and emergencies can be challenging. That’s why cash flow projections —which help you look ahead and manage cash inflows against cash outflows—are such an important part of building a successful business.

Taking the time to master cash flow projections can help you make better, more informed decisions, so you can keep your business firing on all cylinders in today’s competitive and complex global economy.

What is a Cash Flow Projection?

Cash flow projections and cash flow forecasts are often treated as interchangeable terms in many contexts. However, they are differentiated based on actual cash flow (forecasts) vs. hypothetical spend (projections).

Cash flow projections are often used to run potential outcomes in order to estimate the impact of a given decision, while forecasts are more literal. Accordingly, cash flow projections for a given period are often based on cash flow forecasts for that same time period.

Cash flow forecasts and projections can be conducted for any accounting period; it’s quite common for cash-hungry small businesses to conduct a cash flow forecast weekly, for example.

Businesses use both annual cash flow forecasting and projections to help them plan their spend and predicted cash balances for the year ahead, although both are updated at regular intervals as projected revenue and expenses are compared to their actual equivalents.

Positive cash flow (or being cash flow positive ) indicates you have more money coming into your business than flowing out at a given point in time. Cash flow negative (or having a negative cash flow ) refers to the opposite condition, which businesses can and do strive to avoid at all costs, given that an estimated 82% of small businesses fail due to cash flow problems.

It’s important to note that cash flow is related to, but distinct from profitability. Profit measures the amount of cash remaining after all your expenses are covered, not the inflow and outflow of cash.

In a perfect world, both conditions coincide at all points. However, effective cash flow management might mean sacrificing profitability in the short term to protect business continuity and support even greater profits later—or showing a hefty profit on your income statement while actually running cash negative.

Consider this example:

Company X has monthly sales of $2,500,000. At the beginning of the month, the accounting team estimated rent, payroll, and materials would cost $1,900,000. This seems to indicate a clear profit of $600,000. However, two clients still haven’t paid what they owe for the month, and their total invoices come to $850,000.

Suddenly, instead of a healthy profit, you’ve got a $250,000 shortfall on the books. This isn’t necessarily a business killer if it happens only occasionally. But if it becomes a regular occurrence, Company X will soon find itself unable to pay its employees and lenders on time, and without the resources needed to expand production or invest in new products. Staying cash positive is crucial to the longevity and competitive performance of your business—not to mention your bank account.

Executed properly, a cash flow projection gives you a clear picture of what’s ahead in your payables and receivables, helping you make smarter business decisions while minimizing cash flow risk .

The clearer your understanding of your future cash flow, the more effectively you can choose when and where to direct your resources.

Key Benefits of Performing a Cash Flow Forecast or Cash Flow Projection

In addition to protecting your company’s financial health by providing a reliable estimate of your accounts payable and accounts receivable activity for the near future, cash flow forecasting:

• Can reveal potential weaknesses and inconsistencies that raise expenses. With a clear picture of the amount of money flowing in and out of your business across time, you can use both your projection and analysis of past spending activity to uncover time periods and spend categories where expenses are higher than they should be. These “hot spots” can indicate extra costs created by process inefficiencies, maverick spend , or seasonal conditions that affect your particular business or industry.
• Can help you tame spend and protect liquidity—and profitability. The clearer your understanding of your future cash flow, the more effectively you can choose when and where to direct your resources. Whether you’re budgeting for short-term loan payments, investing in new product development, or working with your suppliers to capture early payment discounts, having an accurate view of your actual cash flow will ensure you’ve got the capital you need, whether you’re looking at next month or at the year ahead.
• Can help you evaluate new strategies and ideas. With aid from the right digital tools, you can use cash flow projections to predict the potential impact of different business decisions. Will a pricing increase drive away customers, reducing revenue? Will investing in sustainable materials for a flagship product attract enough new business to counterbalance the materials cost? Can the company take on a short-term loan during the busy season and pay it off in time to avoid shortfalls during the off months? Answering questions like these is much easier with the help of cash flow projections and cash flow forecasts that are based on accurate and complete data.

The Importance of Spend Visibility in Creating Cash Flow Projections

Before you prepare your cash flow forecast or cash flow projection, it’s critical to have the highest possible visibility into your spend data. Without a complete picture of all your spend, your estimates won’t be as accurate and might even cause you to go cash negative at the worst possible time.

Investing in a complete procurement solution like Planergy gives you full control over, and visibility into, your spend activity.

Centralized, cloud-based data management, combined with supplier integration, guided buying, and electronic invoicing, eliminates dangerous cash flow risk factors such as rogue spend and invoice fraud.

All your spend data is captured and stored in a central server, where it can be accessed securely in real time. Everyone from buyers on up through the chief financial officer (CFO) has leveled, role-appropriate access.

Full integration with your accounting software, sales and customer relationship management (CRM), and enterprise resource planning (ERP) systems—along with support for dozens more—enriches your datasphere and can provide additional context and insights that will further improve your forecasts and business decisions.

Process automation, powered by artificial intelligence, eliminates human error and waste, as well as the bottlenecks that can keep you from paying your bills strategically or collecting customer payments efficiently.

And with help from advanced analytics, your team can use templates to create accurate and complete forecasts, budgets, and financial reports, or customize their own for maximum strategic utility and convenience.

Optimizing your Procure-to-Pay (P2P) processes from end to end and ensuring you have complete and accurate data will ensure you can create cash flow forecasts and projections you can rely on for smarter, more strategic decision making and financial management.

How to Perform a Cash Flow Forecast and Projection

Creating an actual cash flow projection isn’t necessarily time-consuming or difficult. However, it does require some preparation and, of course, the cleanest, most accurate spend data you can get.

When preparing your cash flow forecast and projection, keep three things in mind:

• Keep your estimates conservative and realistic. Erring on the side of caution—and leveraging the insights drawn from your historical spend data—can keep you from making potentially costly business decisions.
• Update your forecasts and projections regularly. Monthly projections may not require many updates, but the longer the period forecasted, the more numerous and frequent your updates should be. A lot of things can change over the course of a quarter or year, so be sure to account for changes in revenue and expenses as events unfold.
• Don’t forget to factor in variable expenses. Seasonal businesses will have a much different outlook for cash inflows and outflows than a year ’round retailer.

Using your cash flow assumptions (i.e., the total projected cash flowing in and out of your business for the time period you’re projecting), you can create a monthly cash flow forecast, and then use that to create a cash flow projection, by following a few basic steps.

1. Bring Total Ending Cash Forward

If this is your first cash flow forecast, use your reconciled cash balance. If you’re working from a cash flow forecast from the previous month, use last month’s ending balance as the starting balance for the cash flow statement you’re creating for the month ahead.

So if, for example, you’ve reconciled your bank statement and have an ending cash balance of $500,000, use this value at the top of your new cash flow forecast.

2. Estimate Sales

If you have $2,000,000 in customer invoices due in the coming month, and you estimate 75% will pay in full, then you would record $1,500,000 as income from customer payments.

3. Estimate Additional Revenue

If sales are your only revenue, you can jump ahead to step 4. If not, add any other revenue you expect to receive (e.g., rental income, interest) below sales revenue. Add this value to your revenue to get your Total Incoming Cash.

4. Estimate Your Regular Expenses

Add up all your estimated expenses for the coming month and record each of them as a line item. Examples include rent, wages, insurance, utilities, etc.

5. Estimate Your Seasonal or One-Off Expenses

Any seasonal expenses or one-off costs that occur exclusively in the month being forecast receive their own line item. For example, quarterly fees for Web hosting would only appear in the month they’re paid.

6. Deduct Expenses from Income

After you’ve toted up your cash inflow and cash outflow, subtract your expenses from your income to calculate your cash flow for the month.

7. Add Your Beginning Cash to Your Estimated Cash Flow

Combine your beginning balance with the total monthly cash flow value and record it at the bottom of the cash flow forecast. This is your estimated ending cash balance for the month, and the value you’ll use for the beginning balance on next month’s cash flow statement.

Let’s take a look at a sample cash flow forecast:

To perform a cash flow projection using our cash flow forecast, we need a cash flow forecast that covers the time period we’re using for our projection and a variable to consider.

Let’s assume you’re interested in hiring a consultant to come in and perform a weeklong training course for your purchasing team on sustainable procurement. Assuming the training will be performed and still allow your staff time to perform their regular duties, it’s easy enough to predict the impact on cash flow for the single month; simply add the consultant’s fee as a line item under outgoing cash.

To project the long-term impact of the training on your cash flow, however, you would need forecasts covering, say, a year. Using historical data and estimating the likely impact created by the training, you can modify your assumptions for each month and the year itself.

For example, will more sustainable procurement practices increase materials costs and reduce available cash? Will they reduce expenses by eliminating and replacing high-risk, non-ecologically minded suppliers in your supply chain? Will revenue increase due to attracting new customers who prefer to purchase goods from companies who prioritize sustainable goods—and will this increase be enough to offset any associated marketing expenses that come from promoting the change? Will sustainable sourcing practices allow the company to secure new investors and other funding from new sources?

Answering these questions and adjusting your forecasts accordingly will help you understand the likely impact of the training on your overall cash flow in the year ahead.

Short of a crystal ball, no one can predict the future with absolute certainty. However, estimating your cash flow as accurately as possible in your forecasts will greatly increase the usefulness of your short-term and long-term cash projections.

Protect and Grow Your Business with Accurate Cash Flow Projections

It’s not just what you spend, but when, where, and how you spend it. Make sure you’ve got the tools you need for complete and accurate cash flow projections and forecasts, perform them regularly, and don’t be afraid to take the long view when balancing profitability and positive cash flow. Taking the time to practice responsible cash flow management ensures your company will have the capital it needs, when it needs it—and the flexibility to strike when the iron’s hot for growth and innovation.

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• Learn about us, and our long history of helping companies just like yours.

2. Download our guide “Preparing Your AP Department For The Future”

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Cash flow projection for small businesses

To run a successful business, good cash flow management is crucial. Cash flow projection can help with that.

What is a cash flow projection?

Cash flow projection is a method of predicting cash inflows and outflows to see how much money you’ll have in the future. It gives a good glimpse into your business's financial health and can help plan spending.

A cash flow projection is different from a cash flow statement. A statement focuses on past cash flows, a projection aims to predict the future.

Why is a cash flow projection important?

Staying on top of your business cash flow helps you pay bills on time and it helps ensure you can pay yourself, too. When costs are rising, it becomes even more imperative that businesses get their cash flow management right, and cash flow projection is one way to do it.

Benefits of a cash flow projection

Cash flow projection is a good financial habit to get into. It has multiple operational and financial benefits for your business, including:

• spotting cash shortages and giving you time to work on contingency plans, whether that’s delaying spending, requesting extra credit from suppliers, or securing a business loan
• assessing the affordability of your growth plans – for example, they can show if there’s going to be enough money to buy new tools, or to hire a new employee
• ensuring you will have enough money to pay you, the business owner!
• identifying quickly if expenses are climbing or income is slumping
• highlighting fixable cash flow problems such as slow-paying customers, impractical payment terms, seasonal cycles, or over-reliance on high-cost finance

What are the key components of a cash flow projection?

Your cash flow projection will show a few key aspects of your business' finances. These are:

• starting position (cash in the bank)
• expected cash in (hopefully mostly from sales but may also be from loans or sales of assets)
• expected cash out
• net cash flow, which shows if cash reserves have grown or shrunk
• closing balance

Who is responsible for doing a cash flow projection?

Lots of small business owners do their own cash flow projections. They can use a spreadsheet or accounting software to do it. But plenty of others rely on a bookkeeper or accountant. They’re able to do them quite quickly because they really know their way around small business cash flow.

How to do a cash flow projection

To do a cash flow projection, you estimate the size and timing of upcoming transactions and show what they do to your cash position. You can do this using a spreadsheet or software.

Doing a cash flow projection spreadsheet

• Choose a forecasting period and note how much cash you have at the beginning of that period.
• List and date all your expected cash income for the forecast period, including sales receipts and things like grants, tax refunds, or incoming finance that will hit your bank.
• List and date your outgoings, too. Besides familiar business costs, be sure to capture less regular things like annual fees or taxes that might come due, or repairs that need to be performed during the period.
• Take your starting balance and run through the forecasting period, adding incoming amounts and subtracting outgoing amounts. This will show how much cash you will have at any given point in time.

See an illustrated example of this approach.

Doing a cash flow projection with software

Businesses can also generate a cash flow projection using accounting software . Xero, for example, is designed to track business incomings and outgoings, which means it can create a projection with a few clicks .

A cash flow dashboard shows how cash balances will rise and fall in response to expected transactions.

Accounting software can also integrate with other apps to provide robust, long-term projections. Popular forecasting apps include Spotlight , Fathom and Calxa .

Alternative methods of cash flow projections

There are other ways to generate cash flow projections from your balance sheet and income statement. These typically provide longer term cash flow guidance rather than day-to-day or week-to-week projections. It also requires accounting knowledge to prepare one of these projections so ask an advisor if you want to know more.

Example of a cash flow projection

The finance manager of Tiny Construction wants to assess whether the business’ cash flow will support the purchase of a new piece of equipment in the next month. The equipment will cost $20,000.

Based on current bank balances and reconciliations, Tiny Construction has a starting balance of $45,000. Outstanding invoices and sales forecasts estimate that incoming payments from sales within the next 30 days will be $90,000. There are no other incoming payments for the month.

So the “money in” part of the cash flow projection will look like this:

The “money out” part of the cash flow projection will look like this:

With incoming sales receipts of $90,000 and outgoings of $65,000, the company would have added $25,000 in net cash flow for the period. Adding that to the $45,000 of existing cash will mean the business has $70,000 left in its bank account at the end of the month. This would become their starting balance the following month.

However, if they purchase the equipment with surplus cash, their starting balance for the next month would reduce to $50,000. This example shows how businesses can use cash flow projections to make investment decisions and estimate whether they would be able to afford it or would have to consider financing it.

How do you analyze a cash flow projection?

Once you have prepared a cash flow projection, spend some time analyzing it by checking:

• the closing balance – the amount of money you expect to have in reserve at the end of each period
• net cash flow – the amount by which your cash reserves went up or down during the period
• accuracy – compare your projection to what actually happens in real life. If the projection was off, find out what you overestimated or underestimated. You may learn something new about your business and this process will help make your next projection more accurate.

How often should cash flow projections be done?

Businesses can do cash flow projections for any timeframe and duration. As you might imagine, it gets harder to accurately predict incomings and outgoings the further into the future you go. But whatever range you choose, it’s a good idea to keep refreshing your projection.

If you run a 12 month projection, for example, with a column for each month, you might refresh it at the end of each month. Drop the last month off, add another month to the end, and check all the projections in between to see if anything needs updating.

Cash flow projections for small businesses

Cash is king. The age-old expression is very true for small businesses, whether you are growing or looking to maintain financial stability. A cash flow projection can help you improve your cash flow planning and take control of your financial health.

To reduce the time spent collecting and updating cash flow data, you can automate the process with accounting software. If you’re not ready for software, you can start by downloading a free cash flow projection template .

Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.

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Writing a Business Plan—Financial Projections

Spell out your financial forecast in dollars and sense

Creating financial projections for your startup is both an art and a science. Although investors want to see cold, hard numbers, it can be difficult to predict your financial performance three years down the road, especially if you are still raising seed money. Regardless, short- and medium-term financial projections are a required part of your business plan if you want serious attention from investors.

The financial section of your business plan should include a sales forecast , expenses budget , cash flow statement , balance sheet , and a profit and loss statement . Be sure to follow the generally accepted accounting principles (GAAP) set forth by the Financial Accounting Standards Board , a private-sector organization responsible for setting financial accounting and reporting standards in the U.S. If financial reporting is new territory for you, have an accountant review your projections.

Sales Forecast

As a startup business, you do not have past results to review, which can make forecasting sales difficult. It can be done, though, if you have a good understanding of the market you are entering and industry trends as a whole. In fact, sales forecasts based on a solid understanding of industry and market trends will show potential investors that you've done your homework and your forecast is more than just guesswork.

In practical terms, your forecast should be broken down by monthly sales with entries showing which units are being sold, their price points, and how many you expect to sell. When getting into the second year of your business plan and beyond, it's acceptable to reduce the forecast to quarterly sales. In fact, that's the case for most items in your business plan.

Expenses Budget

What you're selling has to cost something, and this budget is where you need to show your expenses. These include the cost to your business of the units being sold in addition to overhead. It's a good idea to break down your expenses by fixed costs and variable costs. For example, certain expenses will be the same or close to the same every month, including rent, insurance, and others. Some costs likely will vary month by month such as advertising or seasonal sales help.

Cash Flow Statement

As with your sales forecast, cash flow statements for a startup require doing some homework since you do not have historical data to use as a reference. This statement, in short, breaks down how much cash is coming into your business on a monthly basis vs. how much is going out. By using your sales forecasts and your expenses budget, you can estimate your cash flow intelligently.

Keep in mind that revenue often will trail sales, depending on the type of business you are operating. For example, if you have contracts with clients, they may not be paying for items they purchase until the month following delivery. Some clients may carry balances 60 or 90 days beyond delivery. You need to account for this lag when calculating exactly when you expect to see your revenue.

Profit and Loss Statement

Your P&L statement should take the information from your sales projections, expenses budget, and cash flow statement to project how much you expect in profits or losses through the three years included in your business plan. You should have a figure for each individual year as well as a figure for the full three-year period.

Balance Sheet

You provide a breakdown of all of your assets and liabilities in the balances sheet. Many of these assets and liabilities are items that go beyond monthly sales and expenses. For example, any property, equipment, or unsold inventory you own is an asset with a value that can be assigned to it. The same goes for outstanding invoices owed to you that have not been paid. Even though you don't have the cash in hand, you can count those invoices as assets. The amount you owe on a business loan or the amount you owe others on invoices you've not paid would count as liabilities. The balance is the difference between the value of everything you own vs. the value of everything you owe.

Break-Even Projection

If you've done a good job projecting your sales and expenses and inputting the numbers into a spreadsheet, you should be able to identify a date when your business breaks even—in other words, the date when you become profitable, with more money coming in than going out. As a startup business, this is not expected to happen overnight, but potential investors want to see that you have a date in mind and that you can support that projection with the numbers you've supplied in the financial section of your business plan.

Additional Tips

When putting together your financial projections, keep some general tips in mind:

• Get comfortable with spreadsheet software if you aren't already. It is the starting point for all financial projections and offers flexibility, allowing you to quickly change assumptions or weigh alternative scenarios. Microsoft Excel is the most common, and chances are you already have it on your computer. You can also buy special software packages to help with financial projections.
• Prepare a five-year projection . Don’t include this one in the business plan, since the further into the future you project, the harder it is to predict. However, have the projection available in case an investor asks for it.
• Offer two scenarios only . Investors will want to see a best-case and worst-case scenario, but don’t inundate your business plan with myriad medium-case scenarios. They likely will just cause confusion.
• Be reasonable and clear . As mentioned before, financial forecasting is as much art as science. You’ll have to assume certain things, such as your revenue growth, how your raw material and administrative costs will grow, and how effective you’ll be at collecting on accounts receivable. It’s best to be realistic in your projections as you try to recruit investors. If your industry is going through a contraction period and you’re projecting revenue growth of 20 percent a month, expect investors to see red flags.

• Cashflow management

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

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.

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.

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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Cash Flow Projection Template for Business Plan

Identify historical financial data of the business.

• 1 Balance sheet
• 2 Income statement
• 3 Cash flow statement

Analyze past financial performance

• 1 Identify revenue trends
• 2 Identify expense trends
• 3 Assess profitability
• 4 Evaluate liquidity
• 5 Identify financial risks

Forecast future income

Forecast future expenses, calculate expected cash inflow, calculate expected cash outflow, prepare an initial cash flow statement, adjust variables based on economic conditions and business goals, approval: finance manager for preliminary cash flow statement.

• Prepare an initial cash flow statement Will be submitted

Revise the cash flow statement based on Finance Manager's feedback

Calculate final cash inflow and outflow, draw the final cash flow projection, incorporate the cash flow projection into the business plan, approval: senior management for final cash flow projection.

• Incorporate the cash flow projection into the business plan Will be submitted

Incorporate any Senior Management feedback into final projection

Finalise the cash flow projection template for the business plan, prepare a comprehensive report on the entire process, take control of your workflows today., more templates like this.

Free Financial Projection and Forecasting Templates

By Andy Marker | January 3, 2024

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We’ve collected the top free financial projection and forecasting templates. These templates enable business owners, CFOs, accountants, and financial analysts to plan future growth, manage cash flow, attract investors, and make informed decisions.  On this page, you'll find many helpful, free, customizable financial projection and forecasting templates, including a  1 2-month financial projection template , a  startup financial projection template , a  3-year financial projection template , and a  small business financial forecast template , among others. You’ll also find details on the  elements in a financial projection template ,  types of financial projection and forecasting templates , and  related financial templates .

Simple Financial Projection Template

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Small business owners and new entrepreneurs are the ideal users for this simple financial projection template. Just input your expected revenues and expenses. This template stands out due to its ease of use and focus on basic, straightforward financial planning, making it perfect for small-scale or early-stage businesses. Available with or without sample text, this tool offers clear financial oversight, better budget management, and informed decision-making regarding future business growth. 

Looking for help with your business plan? Check out these  free financial templates for a business plan to streamline the process of organizing your business's financial information and presenting it effectively to stakeholders.

Financial Forecast Template

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This template is perfect for businesses that require a detailed and all-encompassing forecast. Users can input various financial data, such as projected revenues, costs, and market trends, to generate a complete financial outlook. Available with or without example text, this template gives you a deeper understanding of your business's financial trajectory, aiding in strategic decision-making and long-term financial stability. 

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

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Use this 12-month financial projection template for better cash-flow management, more accurate budgeting, and enhanced readiness for short-term financial challenges and opportunities. Input estimated monthly revenues and expenses, tracking financial performance over the course of a year. Available with or without sample text, this template is ideal for business owners who need to focus on short-term financial planning. This tool allows you to respond quickly to market shifts and plan effectively for the business's crucial first year. 

Download  free sales forecasting templates to help your business predict future sales, enabling better inventory management, resource planning, and decision-making.

Startup Financial Projection Template

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This dynamic startup financial projection template is ideal for startup founders and entrepreneurs, as it's designed specifically for the unique needs of startups. Available with or without example text, this template focuses on clearly outlining a startup's initial financial trajectory, an essential component for attracting investors. Users can input projected revenues, startup costs, and funding sources to create a comprehensive financial forecast.

3-Year Financial Projection Template

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This three-year financial projection template is particularly useful for business strategists and financial planners who are looking for a medium-term financial planning tool. Input data such as projected revenues, expenses, and growth rates for the next three years. Available with or without sample text, this template lets you anticipate financial challenges and opportunities in the medium term, aiding in strategic decision-making and ensuring sustained business growth.

5-Year Financial Forecasting Template

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CFOs and long-term business planners can use this five-year financial forecasting template to get a clear, long-range financial vision. Available with or without example text, this template allows you to plan strategically and invest wisely, preparing your business for future market developments and opportunities. This unique tool offers an extensive outlook for your business’s financial strategy. Simply input detailed financial data spanning five years, including revenue projections, investment plans, and expected market growth. Visually engaging bar charts of key metrics help turn data into engaging narratives.

Small Business Financial Forecast Template

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The small business financial forecast template is tailored specifically for the scale and specific requirements of small enterprises. Business owners and financial managers can simply input data such as projected sales or expenses. Available with or without sample text, this tool offers the ability to do the following: envision straightforward financial planning; anticipate future financial needs and challenges; make informed decisions; and steer the business toward steady growth.

Elements in a Financial Projection Template

The elements in a financial projection template include future sales, costs, profits, and cash flow. This template illustrates expected receivables, payables, and break-even dates. This tool helps you plan for your business's financial future and growth.   

Here are the standard elements in a financial projection template:   

• Revenue Projection: This estimates future income from various sources over a specific period.
• Expense Forecast: This predicts future costs, including both fixed and variable expenses.
• Profit and Loss Forecast:  This projects the profit or loss by subtracting projected expenses from projected revenues.
• Cash-Flow Projection: This assesses the inflows and outflows of cash, indicating liquidity over time.
• Balance Sheet Projection: This predicts the future financial position, showing assets, liabilities, and equity.
• Break-Even Analysis: This calculates the point at which total revenues equal total costs.
• Capital Expenditure Forecast: This estimates future spending on fixed assets such as equipment or property.
• Debt Repayment Plan: This outlines the schedule for paying back any borrowed funds.
• Sales Forecast:  This predicts future sales volume, often broken down by product or service.
• Gross Margin Analysis:  This looks at the difference between revenue and cost of goods sold.

Types of Financial Projection and Forecasting Templates

There are many types of financial projection and forecasting templates: basic templates for small businesses; detailed ones for big companies; special ones for startup businesses; and others. There are also sales forecasts, cash-flow estimates, and profit and loss projections. 

In addition, financial projection and forecasting templates include long-term planning templates, break-even analyses, budget forecasts, and templates made for specific industries such as retail or manufacturing. 

Each template serves different financial planning needs. Determine which one best suits your requirements based on the scale of your business, the complexity of its financial structure, and the specific department that you want to analyze.

Here's a list of the top types of financial projection and forecasting templates:  

• Basic Financial Projection Template: Ideal for small businesses or startups, this template provides a straightforward approach to forecasting revenue, expenses, and cash flow.
• Detailed Financial Projection Template: Best for larger businesses or those with complex financial structures, this template offers in-depth projections, including balance sheets, income statements, and cash-flow statements.
• Startup Financial Projection Template: Tailored for startups, this template focuses on funding requirements and early-stage revenue forecasts, both crucial for attracting investors and planning initial operations. 
• Sales Forecasting Template:  Used by sales and marketing teams to predict future sales, this template helps you set targets and plan marketing strategies. 
• Cash-Flow Forecast Template: Essential for financial managers who need to monitor the liquidity of the business, this template projects cash inflows and outflows over a period. 
• Profit and Loss Forecast Template (P&L):  Useful for business owners and financial officers who need to anticipate profit margins, this template enables you to forecast revenues and expenses.  
• Three-Year / Five-Year Financial Projection Template: Suitable for long-term business planning, these templates provide a broader view of your company’s financial future, improving your development strategy and investor presentations. 
• Break-Even Analysis Template:  Used by business strategists and financial analysts, this template helps you determine when your business will become profitable. 
• Budget Forecasting Template:  Designed for budget managers, this template uses historical financial data to help you plan your future spending. 
• Sector-Specific Financial Projection Template:  Designed for specific industries (such as retail or manufacturing), these templates take into account industry-specific factors and benchmarks.

Related Financial Templates

Check out this list of free financial templates related to financial projections and forecasting. You'll find templates for budgeting, tracking profits and losses, planning your finances, and more. These tools help keep your company’s money matters organized and clear.

Free Project Budget Templates

Use one of these  project budget templates to maintain control over project finances, ensuring costs stay aligned with the allocated budget and improving overall financial management.

Free Monthly Budget Templates

Use one of these  monthly budget templates to effectively track and manage your business’s income and expenses, helping you plan financially and save money.

Free Expense Report Templates

Use one of these  expense report templates to systematically track and document all business-related expenditures, ensuring accurate reimbursement and efficient financial record-keeping.

Free Balance Sheet Templates

Use one of these  balance sheet templates to summarize your company's financial position at a given time.

Free Cash-Flow Forecast Templates

Use one of these  cash-flow forecast templates to predict future cash inflows and outflows, helping you manage liquidity and make informed financial decisions.

Free Cash-Flow Statement Templates

Use one of these  cash-flow statement templates to track the movement of cash in and out of your business, so you can assess your company’s level of liquidity and financial stability.

Free Discounted Cash-Flow (DCF) Templates

Use one of these  discounted cash-flow (DCF) templates to evaluate the profitability of investments or projects by calculating their present value based on future cash flows.

Free Financial Dashboard Templates

Use one of these  financial dashboard templates to get an at-a-glance view of key financial metrics, so you can make decisions quickly and manage finances effectively.

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Free financial planning templates.

Use one of these  financial planning templates to strategically organize and forecast future finances, helping you set realistic financial goals and ensure long-term business growth.

Free Profit and Loss (P&L) Templates

Use one of these  profit and loss (P&L) templates to systematically track income and expenses, giving you a clear picture of your company's profitability over a specific period.

Free Billing and Invoice Templates

Use one of these  billing and invoice templates to streamline the invoicing process and ensure that you bill clients accurately and professionally for services or products.

Plan and Manage Your Company’s Financial Future with Financial Projection and Forecasting Templates from Smartsheet

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