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 Cash
Flow Projection:
Project Your Cash Flow
Cash flow is the movement of cash in and out of your
business within a given period, usually a week or a month.
It is not the same as profit. A business can show a profit
on the day it goes bankrupt-simply because it has insufficient
cash to meet its obligations.
Cash flow projection - looking ahead to determine
what your cash flow is likely to be is critical to keeping
a business running.
Cash In and Cash Out are the dynamic sections
or your cash-flow projection, representing the flow of money
in and out of business. This is where you make your forecasts.
The line items differ, depending on your particular business.
Elements of Cash Flow
- Starting Cash (or Starting Balance). Each monthly
projection begins with the amount of cash you have on hand
at the start of the month. Your Starting Cash is the same
number as the previous month's Ending Cash.
- Cash In. This section of the statement is also
called "Sources of Cash." It includes all cash received
during the month. There are several possible sources:
- Sales are a primary source of cash, but remember
to include only cash sales. Sales that have been invoiced
do not represent money you can spend this month, so
list only the cash sales you expect to have.
- Paid Receivables are those sales that were
previously invoiced and have been paid this month. It
is important to project accurately when you expect to
be paid-30 days, 60 days, etc.. If a sale made in January
is actually going to be collected in March, you want
your projections to be realistic and reflect that lag
time.
- Interest. If your business is fortunate enough
to have money in the ban it will be earning interest.
- Other. Additional sources of cash might be
a bank loan, sale of stock, or the sale of an asset
such as a company car.
- Cash Out. This section is also referred to as "uses
of cash." Cash leaves the business in two basic ways: fixed
expenses and variable expenses. a. Fixed expenses are incurred
regularly and are not easily eliminated. Generally, they
do not fluctuate with sales volume; they are "fixed" from
month to month: rent and payroll, payroll taxes, estimated
taxes, utilities, interest on loans, and insurance payments.
b. Variable expenses can change from month to month and
often vary with sales volume or production volume. They
can be more easily changed than fixed expenses. Some examples:
supplies, commissions, advertising, raw materials, consulting
services, and promotion.
- Ending Cash (or Ending Balance) is how much cash
is left at the end of the month. It is the result of the
numbers in Cash In and Cash Out. Simply add the Starting
Cash to Total Cash In and then subtract Total Cash Out.
The cash you end the month with is the cash you have to
start the next month-so, you get the number for Starting
Cash by copying it from the previous month's Ending Cash.
- Cash Flow is the amount of cash that has flowed
through the business. It is a measure of what has happened
that month. If nothing has happened-say you began with $1,000
and didn't take any cash in or pay out a nickel-you would
end up with $1,000, but your Cash Flow would be $0. To calculate
Cash Flow, subtract the Ending Cash from the Starting Cash.
The secret to success is positive cash flow.
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Quarterly
Cash Flow Worksheet (by Month)
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Item
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Month
1
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Month
2
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Month
3
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STARTING
CASH
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CASH
IN
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Cash Sales
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Paid
Receivables
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Other Cash 1
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Other
Cash 2
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Other
Cash 3
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TOTAL
CASH IN
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CASH
OUT
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Rent
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Payroll
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Expense
1
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Expense
2
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Expense
3
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Expense
4
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TOTAL
CASH OUT
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ENDING
CASH
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CHANGE
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(Cash
Flow)
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Cash is KING!
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Always remember cash flow is the life blood of
your business.
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You must measure the flow in and out of your business.
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You must carefully MANAGE this cash flow or you
will not be in business very long.
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Always remember Cash is KING!
Check out our Free Downloads
for spreadsheet and other files to help with your Cash Flow
Projections and other Financial Management tools.
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