Cash Flow Projection How to
An Important Part of Every Business Plan Is the Cash Flow Projection
Apr 13, 2008
A cash flow projection is an integral part of the financial section of all business plans, litereally describing how cash is projected to flow in and out of your business. Creating a cash flow projection isn't as easy or as cut and dried as the other financial statements entrepreneurs require, because instead of merely reporting financial figures it demonstrates how various things may affect your business in the future. A key component of creating a cash flow projection is knowing how to forecast your sales.
Note: A cash flow projection is not the same thing as a cash flow statement. Where cash flow projections are used to anticipate future cash flow, cash flow statements are used to explain previous actual cash flow.
Why Do I Need to Write a Cash Flow Projection?
Cash flow projections are crucial to both new and experienced entrepreneurs alike because they clearly show what costs, profits and losses are coming down the pipe so as better to plan for. This assists the entrepreneur in determining whether or not he/she has enough capital in place to run the business for the period of the projection (usually monthly for a full year). Cash flow projections are also used by loan companies to determine whether or not a business is a good credit risk.
Cash Flow Projection How to
There are three sections in every cash flow projection. They are:
- Cash Revenues: This is where you would list all of the expected revenues for each month in your year-long cash flow projection. Make sure to only list revenues that are expected to be received in cash during each month and not accounts payable. Revenues include all sales from products and/or services.
- Cash Disbursements: Total the list of monthly expenditures planned for, and list them in this column on a monthly basis. This includes all expenditures the business may encounter, such as rent, utilities, salaries and wages, professional services, advertising and inventory.
- Reconciliation: This last section in the cash flow projection reconciles the amounts from the month before. Therefore, this figure represents a dollar figure carried over from the month before plus any revenues minus any disbursements. Any negative numbers in the reconciliation means there isn't enough cash flow to run the business in that particular month.
Want to see a cash flow projection in action, or use a template for your business plan? Try reviewing the Free Business Plan Templates and More Free Business Plan Templates for ideas. Or, go back to the Free Business Plan How To.
