How To Create a Cash Flow Projection

Your cash flow statement can give you an idea of your business’s current financial health. But, wouldn’t it be nice to see your company’s future cash flow? You don’t need a crystal ball to view your cash flow’s future. Instead, create a cash flow projection. Read on to learn about cash flow projection and how to project cash flow.

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.

How to Accurately Project Cash Flow: Your Complete Guide

Advantages of projected cash flow

There are several advantages of regularly preparing cash flow projections. These advantages include:

What is projected cash flow?

Projected cash flow refers to the breakdown of money that goes in and out of a business on a regular basis. Cash flow projection involves calculating both expenses and income and using this information to determine how much cash will be left after a set period of time. Most organizations create cash flow projections for a 12-month period of time. However, some companies create projected cash flows for much shorter periods of time such as weekly, monthly or biannually.

Some businesses choose to incorporate a hypothetical scenario into their cash flow projections to account for a potential increase or decrease in money during a period of time. For example, a business owner may anticipate needing to hire new employees for the holiday season and includes the increase in cash outflow required when hiring and training new personnel. Incorporating an anticipated change in cash flow allows business owners to better account for future needs and how a situation may impact the company in terms of finances.

How to calculate projected cash flow

Business owners can take the following steps to create a cash flow projection for their organization:

1. Determine forecasted cash received

The first step in creating a cash flow projection is to estimate your cash received for the time period youre projecting for. Common sources of cash inflow include:

2. Forecast cash outflow

The next step in creating a cash flow projection is to forecast cash outflow you anticipate for a given time period. Common examples of cash outflow for businesses include:

3. Calculate projected cash flow

Once you have all of your income and expenses listed, its now time to calculate your businesss anticipated cash flow for a given period of time. To do so, simply subtract the cash you anticipate on spending in a given period of time by the amount of cash you anticipate on receiving. The number you get is called your net cash flow. If this number is positive, your business will make more cash than it spends. If its negative, your business will be spending more cash than it receives in that given time period.

Example of projected cash flow

The following is an example of a cash flow projection:

ANC Marketing created the following cash flow projection for a six-month period:

Anticipated cash received

Investments: $30,000

Asset sales: $30,000

Sales of products and services: $25,000

Interest: $1,000

Total: $86,000

Anticipated cash outflow

Loan payments: $5,000

Operating expenses: $40,000

Stakeholder distributions: $5,000

Bills: $3,000

Total: $53,000

Ending cash balance: $86,000 – $53,000 = $33,000

In this example, the business will make $33,000 during the six-month period.

Tips to keep in mind when calculating projected cash flow

The following are a few tips to keep in mind when creating a projected cash flow plan for your company:

FAQ

What is a projected cash flow?

Four steps to a simple 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. …
  2. List all your income. For each week or month in your cash flow forecast, list all the cash you’ve got coming in. …
  3. List all your outgoings. …
  4. Work out your running cash flow.

How do you calculate project cash flow?

An accurate cash flow forecast helps companies predict future cash positions, avoid crippling cash shortages, and earn returns on any cash surpluses they may have in the most efficient manner possible. Forecasting cash flow is typically the responsibility of a business’s finance team.

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