cash flow template for business plan

How to Create a Cash Flow Forecast

10 min. read

Updated May 3, 2024

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, and purchasing assets (new equipment, for example) reduces your cash but does not reduce your profitability. Because of this, your business can spend money and still be 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 three 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.

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. These will show up in the following sections.

2. Loan Payments

When you make 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 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.

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 Complete Guide

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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 explains everything you need to know, provides you with a step-by-step guide to preparing cash flow projections and highlights the key role automation plays in enhancing the effectiveness of these projections. 

What Is Cash Flow Projection?

Cash flow projection is a financial forecast that estimates the future inflows and outflows of cash for a specified period, typically using a cash flow projection template. It helps businesses anticipate liquidity needs, plan investments, and ensure financial stability.

Think of cash flow projection 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  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.

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.

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 forecasts and projections, business owners can use these tools more effectively to manage their finances and plan for the future. 

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

An effective cash flow projection enables better management of business finances. Here is a step-by-step process to create cash flow projections:

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 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

• 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. 

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 outflow 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 outflow s. 

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 began 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 at 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.
• It 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 a positive net cash flow in other months.
• Indicates the ability to handle short-term cash fluctuations and maintain overall financial stability.

Consistent Closing Balance Growth:

• The closing balance exhibits a consistent and upward trend over the projection period.
• Reflects effective cash flow management, where inflows cover outflows and support the growth of the closing cash position.

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

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. 

Download our 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 projection models that don’t mirror the actual workings of their finance department.

Cash flow projections are only as strong as the numbers behind them. No one can be completely certain months in advance if they will encounter any unexpected events. 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.

Accounts Receivable: 

• Reflect the payment behaviour 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 these 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. 

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

Professionals in 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 of automated cash flow projections that far 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, by opting for customization options, you can 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 budgets 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, totalling 12 hours per week or 624 hours per year. 

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

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 are:

• 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.

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.

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. 

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 a 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 help your business have enough cash flow to maintain its regular operations during the given period.

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 are projected cash flow and fund flow statements?

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

5. What are the four key uses of 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

What Is Consignment Inventory? Everything You Need To Know

Cash Forecasting for Mid-Sized Businesses

What is Working Capital Management: Example, Types & Ratio

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Maintaining an accurate record of cash inflows and outflows is vital for the sustainability and growth of your business. 

Coefficient’s Simple Cash Flow Template brings you the simplicity and precision you need to handle your finances more effectively.

Benefits: Simple Cash Flow Template

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Key Features: Simple Cash Flow Template

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• Holistic Financial Perspective: Delivers a comprehensive analysis of cash transactions, covering operational, investment, and financing undertakings.

Getting Started withThis Template

• Download the Template: Obtain the Simple Cash Flow Template from our portal.
• Customize to Fit: Align the template's categories with your unique business requirements.
• Populate Financial Data: Record your monthly cash activities spanning operational, investment, and financial fronts.
• Analyze the Compiled Summary: Evaluate the automatically curated cash flow insight to gauge financial wellness.

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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.

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

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

What is a cash flow forecast?

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

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

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

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

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

The benefits of cash forecasting

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

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

Free cash flow forecast template

To make this a lot easier, we’ve created a business cash flow forecast template for Excel that 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 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 demo .

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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Cash flow forecasting template

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

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

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

Download your free cash flow forecast template [Excel]

Table of contents:

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

What is a cash forecasting template?

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

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

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

The two types of cash flow data are:

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

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

Why Is a Cash Flow Forecasting Template Important?

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

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

How to Customise Your Cash Flow Projection Template

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

Set Your Forecast Report’s Granularity

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

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

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

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

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

Daily Cash Forecasting

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

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

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

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

Monthly Cash Forecasting

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

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

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

Yearly Cash Forecasting

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

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

Choose Your Cash Forecast Template Time Horizon

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

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

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

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

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

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

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

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

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

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

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

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

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8 Critical Activities Supported by your Cash Flow Forecast

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• Limited Company Loans
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Free Cash Flow Forecast

Download our free cash flow forecast template and make better spending decisions, what is a cash flow forecast.

A cash flow forecast estimates the money you expect your business to bring in and payout over time. It should reflect all your likely revenue sources (like sales or other payments) and compare them against your business expenses (like supplier payments, rent, and tax payments).

An accurate cash flow forecast helps businesses to predict future cash positions, avoid crippling cash shortages, and earn returns on any cash surplus they may have in the most efficient manner possible.

Follow four simple steps to build your cash flow forecast:

• Decide how far out you want to plan for
• List all your income
• List all your outgoings
• Work out your running cash flow

What a cash flow forecast will tell you

A cash flow forecast is for looking into the future. It will help you predict how much money will be in the bank next week, next month, or even next year, which allows you to:

• Better plan your business activities and resources and avoid overtrading
• Allows you to better understand your business performance
• Supports you in making sensible, realistic decisions for your business
• Gives you greater control over your business finances
• Helps you plan for the future

Download your free template

About fleximize.

Fleximize is a multi-award-winning digital business lender dedicated to providing UK SMEs with flexible finance, done properly. Since launching in 2014, we’ve supported thousands of small businesses with over £300 million in funding.

As well as funding the underserved, we’re on a mission to drive transparency and demystify commercial finance. Business funding is evolving for the better, and we’re proud to be part of the revolution.

Fleximize does not provide accounting, tax, business, or legal advice. This template has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business.

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Financial modeling spreadsheets and templates in Excel & Google Sheets

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How to Excel With Business Plan Cash Flow Projection Example: Tips & Tricks

To excel with a business plan cash flow projection example, start by accurately estimating future sales and expenses. Ensure you update projections regularly to reflect business changes.

Creating a reliable cash flow projection is crucial for steering your business towards financial stability and growth. A well-crafted business plan not only outlines the financial expectations but also attracts potential investors by showcasing realistic and strategic financial planning. It serves as a navigational tool that helps entrepreneurs steer through fiscal challenges by anticipating cash shortages and enabling proactive solutions.

By mastering cash flow projection techniques, business owners can ensure that they maintain sufficient liquidity to cover day-to-day operations and make informed decisions for long-term financial health. Key aspects include understanding the nuances of your revenue streams, closely monitoring expenditure, and preparing for unpredictability with a well-thought buffer. Expert tips can transform your projection into a dynamic part of your overall strategy, identifying potential pitfalls before they arise and pivot your business plan accordingly.

Introduction To Cash Flow Projections

Welcome to the world of savvy business planning, where cash flow projections become the lighthouse guiding your venture through the foggy seas of financial uncertainty. This journey explores the essentials of mapping out your business’s financial future. Let’s dive into the nuts and bolts of preparing effective cash flow forecasts that can propel your business strategy forward.

The Importance Of Business Plan Cash Flow

The lifeblood of any business is its cash flow. A robust business plan hinges on understanding where your revenue comes from and where your money goes. Solid cash flow projections spotlight potential shortfalls and surpluses. They help you make informed decisions about managing debt, investments, and operational costs. In short, it’s a financial compass for sustainable growth.

• Spot Financial Trends: Identify positive and negative financial flows early.
• Strategic Planning: Align cash flow insights with business strategies.
• Investor Confidence: Show investors your business is steady at the helm.
• Loan Assessment: Lenders favor businesses with clear financial forecasts.

Basic Concepts In Cash Flow Forecasting

Grasping the underlying principles of cash flow forecasting is like understanding the rules of the road before driving a car. Start by distinguishing between different types of cash flow: operational, investing, and financing .

Projecting your cash flow encompasses estimating these components over a set period. Craft a meticulous schedule, typically on a monthly basis, to predict the cash entering and leaving your business. Balance accuracy with pragmatism to create a functional and dynamic tool.

• Estimate Sales: Foresee future sales based on market analysis.
• Monitor Costs: Include all operational costs and incidentals.
• Analyze Profitability: Match revenue against expenses to find net flow.

Remember, cash flow forecasting is an ongoing process. Regularly update your projections with real-time data for best results.

Setting The Stage For A Strong Projection

Cash flow projection paints a picture of your business finances in the future. It is a vital map guiding your company’s journey through the financial landscape. A strong projection can mean the difference between navigating success and getting lost in a sea of numbers. Let’s set the stage for a cash flow projection that stands out.

Identifying Key Components For Projection

Every projection starts with key building blocks . These include:

• Income sources: Sales, investments, loans.
• Expense categories: Raw materials, salaries, utilities.
• Capital expenditures: New equipment, property.
• Debt financing: Loan repayments, interest costs.

Recognizing these elements forms the basis of a realistic cash flow projection .

Gathering Financial Data

Accurate financial data is essential for creating a solid projection. Begin by collecting:

With this information, your projection will have a solid foundation .

Creating Your Cash Flow Template

Crafting a precise cash flow template is a cornerstone to mastering your business finances. This roadmap represents the bloodline of your company’s monetary health. Let’s dive into structuring your very own template with practicality and foresight.

Essential Elements Of A Cash Flow Template

Every business must monitor its liquidity. A cash flow template captures this. The essential elements include:

• Starting Balance: Capture your cash balance at the period’s beginning.
• Cash Incoming: Record all sources of cash influx, like sales or loans.
• Cash Outgoing: List all expenses, from rent to utilities.
• Net Cash Flow: It’s incoming minus outgoing cash.
• Ending Balance: This is your starting balance plus net cash flow.

A streamlined template integrates these elements beautifully. A glance lets business owners see their liquidity state.

The Role Of Spreadsheet Software

Digitized templates harness the power of spreadsheet software. These tools offer:

• Flexibility in modifying templates
• Formulas that automate calculations
• Real-time data update and analysis
• Accessible summaries through charts

Microsoft Excel or Google Sheets are prime picks. They offer an array of features:

With these software solutions, your template becomes a dynamic tool. You don’t just track but also predict future cash flow scenarios.

Remember to keep your cash flow projection accurate. Bold assertions in your planning could transform your business trajectory. Let this template be your guide to financial clarity and strategic foresight!

Inputting Your Numbers

Guiding your business through the financial unknown starts with accurately inputting your numbers into a cash flow projection. This is your road map for future financial health. Plunging into this task without delay will pave a path for sustainable growth. Here, we’ll cover the essentials of sales projections and expense mapping.

Starting With Sales Projections

A sales forecast is the backbone of your cash flow projection. It demands precision and attention to detail. Kick off by reflecting on past sales data, market research, and current trends. Let’s break down this journey:

• Review historical data: Look at past sales to set a realistic benchmark .
• Consider market conditions: Align expectations with industry trends and economic forecasts .
• Analyze competitive landscape: Understand your competitors’ impact on your sales.
• Seasonal fluctuations: Account for peaks and troughs with monthly or quarterly breakdowns.

Project confident sales figures by combining these factors for an informed prediction.

Mapping Out Expenses And Outlays

Business success flows from a thorough understanding of every penny it spends. Let’s chart the territory of expense tracking:

• Fixed costs: These are consistent expenses such as rent, salaries, and utilities.
• Variable costs: Costs that change, like materials and shipping.
• One-off expenses: Plan for irregular spends such as equipment or business travel.

Detailing each category ensures no expense goes unnoticed . Use this framework to develop a comprehensive ledger of your cash outflows.

Presenting data in a clear table format like above provides a quick visual reference and ensures accuracy in your projections.

Factoring In Seasonality And Trends

Understanding the impact of seasonality and trends plays a vital role in the precision of a business plan cash flow projection. Recognizing how these factors influence revenue and expenses can transform an average financial forecast into a powerful tool for decision-making. It becomes crucial to adjust for business cycles and analyze historical data to ensure accuracy in projections.

Adjusting For Business Cycles

Business cycles refer to the highs and lows in demand that occur throughout the year. Factoring in these fluctuations ensures that your cash flow projection reflects the reality of your business operations.

• Identify peak seasons: When do sales skyrocket? Adjust your cash inflows accordingly.
• Note slow periods: Recognize when your sales may dip to anticipate potential cash outflow concerns.
• Plan for variance: Include a buffer in your forecasts to safeguard against unexpected changes.

Analyzing Historical Data For Accuracy

To make well-informed projections, detailed analysis of past financial data is essential. This helps in understanding how previous trends could shape future cash flows.

Repeat rows for each season of each year

• Look for patterns: Examine the table to identify trends over multiple years.
• Consider anomalies: Separate unusual events from regular trends to avoid skewing the data.
• Use precise numbers: Rely on exact figures rather than rough estimates to bolster your projection’s reliability.

The Power Of Conservative Estimating

In the business world, ‘The Power of Conservative Estimating’ is a game-changer. It’s not about underselling your potential. It’s about grounding your cash flow projections in a reality that can weather storms.

Envision the pathway to success with a mindset that respects potential bumps. Being cautiously optimistic in your cash flow forecast ignites trust. It shows stakeholders your business can thrive, even when challenges appear.

Why Erring On The Side Of Caution Pays Off

• Stress test your finances . This identifies weak spots early.
• A realistic approach secures investor confidence .
• Prepare for sudden costs, ensuring flexibility in your plan .
• Boost your resilience against market volatilities.

Scenario Planning For Best And Worst Cases

Map out various outcomes and their impacts on cash flow . Tackle unpredictability head-on.

Prepare for each scenario with a tailored strategy. This ensures readiness for any financial climate .

Regular Reviews And Updates

Mastering the art of managing your business’ cash flow begins with regular reviews and updates of your projections. Like a garden that needs consistent care, your business plan’s cash flow projection is a living document. It requires frequent attention to thrive and adapt to real-world changes. Staying on top of these reviews helps to ensure financial health and can alert you to potential risks before they grow into problems.

Scheduling Periodic Check-ins

Embedding a rhythm of periodic check-ins into your routine is crucial. These moments are your chance to review the numbers and adjust plans as needed. Consider setting up a regular schedule, perhaps monthly or quarterly, to reassess your cash flow projections. Use calendar reminders or project management tools to keep these appointments on track.

• Monthly Reviews: Ideal for catching deviations early and adjusting quickly.
• Quarterly Assessments: Beneficial for broader trends and seasonal changes.
• Annual Summaries: Perfect for long-term planning and major strategic shifts.

Refining Your Projections With Real Data

Using actual financial data brings life to your projections. It fine-tunes your predictions with accuracy that only reality can provide. Gather data from income statements, cash flow statements, and other financial reports. Update your projections with these real numbers to reflect the true state of your business finances. Doing so will help pinpoint where your business is outperforming or underperforming expectations.

Add more rows as needed

Navigating Potential Pitfalls

Creating a robust business plan is crucial for your company’s success. One key component? A cash flow projection. This forecast lays a foundation for financial health. Yet, it’s easy to slip on unseen hurdles. Let’s explore common mistakes and avoid pitfalls to keep your business on solid footing.

Common Cash Flow Projection Mistakes

Errors in cash flow projections can derail your business. Look out for these traps:

• Incomplete Data: Skipping details may lead to understated expenses or overstated income.
• Mismatched Timing: When cash inflows and outflows aren’t synced, it can skew your projection.
• Forgotten Expenses: Every penny counts. Overlooking small costs adds up to big miscalculations.

Avoiding Overoptimism In Your Forecasts

Staying grounded in reality is crucial. To prevent overoptimism:

• Be Conservative: Plan for the worst, and you’ll be prepared for anything.
• Use Past Data: Historical trends are guiding lights. Base your projections on them.
• Include Contingencies: Unexpected events happen. Set aside a buffer to safeguard your forecast.

Using Projections To Make Strategic Decisions

Business success often hinges on the wise decisions you make. A cash flow projection is a valuable roadmap. It can guide your strategic choices. Let’s explore how to use these projections effectively.

Driving Business Strategy With Cash Flow Insights

Good leaders steer companies to profitability. They use cash flow analyses . With accurate forecasts, clear decisions are within reach. These insights create a strategy that aligns with financial health.

• Identify peak cash periods : Use these times for strategic investments.
• Spot cash dips early : Prepare with saving or credit options.
• Adjust pricing or sales strategies : Do this based on cash flow trends.

Identifying Investment Opportunities And Risks

Vigilant businesses thrive. Use cash flow projections for spotting opportunities and risks . Wise investments are often the result.

To make strategic decisions:

• Review projections monthly.
• Match investment size to cash flow comfort.
• Consider risk management strategies.

Leveraging Technology For Accurate Projections

In today’s fast-paced business environment, leveraging technology for accurate cash flow projections is vital. Gone are the days of manual calculations and guesswork. With the right tools, businesses can secure a clearer financial future. Now, let’s dive into how cutting-edge financial software and automation elevate cash flow analysis.

The Role Of Financial Software In Projection Accuracy

Financial software acts as a compass in the sea of financial planning. It guides businesses with precision and reliability . Here is how:

• Uses historical data for trend analysis.
• Reduces human errors in calculations.
• Provides real-time insights into financial health.
• Allows for scenario planning and forecasting.

Implementing top-tier financial software means making decisions based on solid data , not hunches.

Automating Cash Flow Analysis

Automation streamlines cash flow management . The benefits include:

• Time-saving through automated report generation.
• Consistent tracking of income and expenses.
• Minimizes the risk of missed or late payments.
• Keeps a finger on the pulse of your business’s liquidity.

With automation, you get a clear, up-to-date picture of your cash flow, empowering you to make informed decisions quickly.

Conclusion: Integrating Projections Into Overall Strategy

Successful business management hinges on foresight. A well-crafted cash flow projection is essential. It guides leaders to make informed decisions. Let’s explore key steps to ensure cash flow projections boost your business strategy.

The Big Picture: Cash Flow Projections And Business Success

A robust projection aligns with your business’s objectives and goals. Seeing the big picture is crucial. Here’s how:

• Match projections with short-term and long-term plans.
• Analyze different scenarios, including best and worst cases.
• Balance ambition with realistic financial capabilities.

Integrating projections supports strategic adjustments. It allows for dynamic business growth.

Continual Learning And Adaptation In Financial Management

The business environment never stands still. Neither should your financial management. Always be ready to learn and adapt.

• Regularly review your cash flow projections.
• Stay up-to-date with market trends and economic shifts .
• Use new insights to refine financial strategies.

With ongoing learning and flexibility, your business stays resilient. Use cash flow projections to navigate to success.

Frequently Asked

How to do cash flow projection for a business plan.

Estimate your business’s future sales and expenses. Record these projections monthly for the first year. Also, factor in expected cash payments and receipts. Update your forecast regularly to reflect actual performance and market changes. Use this model to predict future cash flow.

How Do I Create A Cash Flow Forecast In Excel?

Open Excel and set up your columns with headings like “Income,” “Expenses,” and “Net Cash Flow. ” Estimate monthly incomes and expenses, entering these under appropriate headings. Subtract expenses from income to calculate net cash flow for each month. Summarize to project future cash balances.

What Is The Formula For The Cash Flow Projection?

The cash flow projection formula is: Beginning Cash + Projected Inflows – Projected Outflows = Ending Cash. This estimates your business’s cash position over a given period.

How Do You Present Cash Flow In Excel?

To present cash flow in Excel, create a worksheet with separate sections for operating, investing, and financing activities. Record cash inflows and outflows under each category, then calculate the net cash flow. Use formulas for automatic updates when inputting new data.

Crafting a robust business plan cash flow projection isn’t just a skill—it’s an essential business compass. With the strategies outlined, you’ll navigate financial forecasts more effectively. Remember to revisit and adjust your projections regularly, ensuring they serve as a dynamic tool for business growth.

Embrace the process, and let these projections illuminate the path to your company’s success.

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Cash Flow Forecasting

Free Cash Flow Forecast Template

Harriet Stevenson

11th August 2017 11th October 2023

We understand how important cash flow forecasting is for a business, especially right now. That’s why we’ve created a cash flow forecast template for you to start using for free today. Simply hit the button below and it’s yours.

Do you know exactly how much cash is coming into and out of your business? If not, that could be a problem. Forecasting how much cash your business is going to have in the coming weeks and months is crucial for business survival. But do you know how to create a cash flow forecast? If not, we’ve built this handy cash flow template for you to get started. Just make a copy of it and adjust it to suit your business.

This easy to use cash flow template can help you quickly calculate your total expenses and look at your expected earnings. Simply input the relevant numbers and the cash flow template will help you forecast your business’ future.

Get your free cash flow forecast template

What is a cash flow forecast?

A cash flow forecast is a plan of when cash will come into and out of your business, while clearly showing what you’ll have in your bank account at the end of the month. Cash flow forecasting typically looks at two types of data:

• Actual cash flow
• Forecast cash flow

That means you should look at what your cash flow looks like both now and in the future. A cash flow forecast should include all of your known and expected business expenses, like office rental and staff wages, as well as all of your revenue sources, such as product sales.

Why is a cash flow template important?

A cash flow forecast predicts exactly when and how much cash is going to enter and leave your business over time, allowing you to prepare for cash crunches and surpluses.

Having an accurate cash flow forecast that is updated regularly can provide you with a useful snapshot of the health of your business that can be shared internally or with external stakeholders such as board members or investors.

A cash flow forecast will ensure you keep on top of your business’ financial outlook, helping you with things like:

• Planning ahead for cash shortages and surpluses
• Scenario planning for ‘what if’ questions in the future
• Track your daily, weekly and monthly spending to ensure you stick to your budgets
• Navigating the ups and downs of cash flow, especially if you rely on contracts and project work
• Understanding the impact of late payments from clients

Is it a good idea to use a cash flow spreadsheet?

Using a cash flow forecast template in Excel, Google Sheets or Numbers is definitely a good first step. However, it does come with significant limitations. Spreadsheets are prone to error, and need constant updating. The more your business grows, the harder it will be to maintain a manual cash flow forecast.

If you’d like to compare the differences, check out this article on using cash flow forecasting software versus using a spreadsheet .

How to use the Float cash flow template

Our cash flow template is easy to use – even if you’ve never done any forecasting before. 

First, make a copy of our cash flow template , or if you’re a Xero user, you can download your Cash Summary directly into a spreadsheet and use it to build your forecast with this guide . 

There are two main sections to fill out. The first is cash in, where you’ll outline money that’s coming into your business. We’ve included lines for:

• Anticipated sales
• Loans or investment
• Other sources of cash or equity
• Interest income

If any of these don’t apply to your business, just delete the row – or if there’s an additional source of income for your company, you can add that in.

The second section is cash out, where you’ll list all the expenses incurred by your businesses. Be sure to include those that you pay every month, like rent, as well as less regular expenses, such as utilities and taxes. This section of the forecast will include things like insurance, telephone and internet, business equipment, and marketing expenses.

Once you’ve entered all of your income and expenditure figures, the template will automatically calculate the difference. If the figure is positive, congratulations! It means that you’re anticipating your income to be greater than your expenditure, and you can start thinking about what to do with your surplus cash . If the figure is negative, it means that you’re forecast to spend more than you earn – but knowing that this in advance means that you can plan ahead and prepare for it.

Why do I need to keep updating my forecast?

The grunt work comes with keeping your numbers up-to-date. Set aside time every week to look at what cash has moved and update your projections accordingly. It’s a time-consuming task, but pop a regular time slot in your calendar to work through it, grab a cup of tea, and work through the figures to ensure your forecast stays up to date.

Without an accurate forecast, your business cannot predict how much cash it will have on hand weeks, months, or years down the road. A spreadsheet full of best guesses that aren’t tied to the day to day reality of your business will stop being useful very quickly. 

Make sure you double-check what you’ve entered, as it’s all too easy to accidentally put an extra zero where it shouldn’t be.

Can I automate my cash flow forecast?

If the pain of forecasting manually in a spreadsheet becomes too great and you use online accounting software such as Xero or QuickBooks Online , you should consider using an app or add-on to manage the updating for you.

Check out the Xero Marketplace or QBO App Store , which provides a wide range of bolt ons that can automate many of the processes that can cause headaches when managing your cash. Float is one of these apps, and can create and automatically update your cash flow forecast using the data in your Xero or QuickBooks Online account.

Other add-ons that can help you keep a handle on your cash flow include Chaser , which automates the task of chasing clients to pay their invoices, and Dext , which streamlines the staff expense claims process.

Want to try out our cash flow forecasting app? Sign up for a free trial and find out why our users think it’s so much better than a spreadsheet!

Simple Cash Flow Statement Template (In Excel)

A cash flow statement is a financial statement that shows how changes in cash flow are related to the company’s activities over a specific period of time. These activities include the company’s operations, investments, and financing. However, this statement does not include non-cash items such as depreciation and amortization.

It’s important for business owners to have an accurate understanding of their cash flow because it provides them with the information they need to manage their finances effectively. Cash flow statements are especially helpful for small businesses that might not have access to other forms of financial statements, such as income statements and balance sheets. Therefore, for many businesses, a cash flow statement is an essential component of a business plan and helps to provide a solid foundation for decision-making.

What is a Pro Forma Cash Flow Statement?

A pro forma cash flow statement is a financial forecast that estimates the future cash flow of a business. It is based on certain assumptions and can help provide an indication of how much money the company may have available in the future. Pro forma statements are typically created using historical data to predict the expected future cash flow position.

This type of statement projects potential cash flow activities, such as revenues, expenses, investments, and financing activities. By looking at these variables in terms of their timing and dollar amount, it helps to provide insight into how much money a business might need to run its operations over a given period of time. Unlike other financial statements, such as income and balance sheets, pro forma cash flow statements do not include non-cash items like depreciation or amortization.

Pro forma cash flow statements can be useful for making informed decisions about how best to manage the company’s finances. For example, when allocating funds for large investments or expansions, a pro forma statement can give an estimate of what kind of impact it could have on the cash flow analysis of the business over time. Additionally, it can help small businesses plan for economic downturns by providing them with an estimate of when they should start conserving their finances before any trouble hits. This type of planning is essential for any business that wants to remain afloat during tough times.

Why You Need a Cash Flow Statement For Your Business

There are several reasons why a statement of cash flows is essential for your business and should be included in your business plan:

• Tracks cash inflows and outflows: It helps to track how much cash flows into and out of the company. This information can be used to understand the company’s financial health and can help identify any potential problems or areas for improvement.
• Analyzes cash flow trends: It’s important to analyze the historical data from a cash flow statement in order to identify any patterns or trends. This analysis can then be used to plan for any future expenses or investing activities that may be necessary.
• Improves budgeting: By creating a cash flow statement, businesses can better understand their current financial situation and use this knowledge to create more accurate budgets for future projects or activities.
• Shows investors how well the business is doing: A cash flow statement can be used to show potential investors how well the company is doing financially. This information is essential for any investor who wants to make an informed decision about investing in the company. 

Finish Your Financial Model and Business Plan in 1 Day!

Don’t you wish there was a faster, easier way to finish your financial model and business plan?

With Growthink’s Ultimate Business Plan Template , which includes a completely automated financial model (income statement, balance sheet, and cash flow statement) , you can finish your business plan and financial model in just 8 hours or less.

Components of a Simple Small Business Cash Flow Statement

A basic small business cash flow analysis typically includes three main sections:

Cash Flow From Operating Activities

This section focuses on the cash that is generated from the business’s core operations. It should include information such as sales, operating expenses, taxes paid, and any other activities for the period.

Cash Flow From Investing Activities

This section tracks any investments made by the company – such as purchases of equipment or property – and will also include any returns from those investments.

Cash Flow From Financing Activities

This section will track any financing activities in which a business engages. It could include loan payments or interest payments as well as proceeds from capital raises or debt offerings.

Download our cash flow statement template that will help you create your own cash flow analysis.

Download our Sample Cash Flow Statement

How To Create a Simple Cash Flow Statement For Small Business

Now that you know all the essential components of a simple cash flow statement, you are ready to create your own. Below are the steps necessary to create a cash flow statement template in Excel:

• Create A New Workbook: Open a new Excel workbook and create tabs for “Operating Activities,” “Investing Activities,” and “Financing Activities.”
• Choose Your Period: Decide which particular period you want to track and enter that information in the header of each tab (e.g., 1/1/22-6/30/22).
• Gather Your Data: Make sure you have all your records of transactions for the period on hand. These can include bank and credit card statements, invoices, loan documents, etc.
• Enter In All Your Revenue & Expenses: Now, you need to enter your revenues and operating expenses into the appropriate tabs. Make sure you include any interest payments or loan repayments along with any other transactions that relate to the cash flow of your business.
• Summarize & Calculate: Once all the data is entered, you can now calculate the net cash flow for each tab. This will give you a total figure for your cash flow statement. To calculate cash flow for each tab, add up all the income and subtract all the expenses. Input this formula into the final cell of each tab to calculate the total.
• Save & Review: After saving your cash flow analysis statement template in Excel, review it to make sure all the figures are accurate. Once you are satisfied with the results, you can save the workbook as a template and use it for future cash flow projections.

Other Financial Statements

The cash flow statement is not the only financial statement that businesses need. Other important documents include the income statement and balance sheet.

The income statement shows a company’s revenues and expenses over a period of time. This can include anything from operational expenses to marketing costs. It also gives you a detailed view of how the business is performing and where it can make improvements. Unlike a cash flow statement, an income statement does not focus on the movement of cash. Rather, it tracks the business’s income and expenses.

The balance sheet is a snapshot of a company’s financial position at a given point in time. It is divided into three sections: assets, shareholders’ equity, and liabilities. The Assets include anything the company owns, such as equipment or accounts receivable. Shareholders’ equity is the money attributable to the shareholders of the company and is always equal to the value of the assets minus liabilities. Liabilities are any debts or obligations that the business owes. 

The balance sheet differs from the cash flow statement in that it does not track the movement of money but instead shows the company’s financial position at a specific point in time.

OR, Let Us Develop Your Financial Model For You

Since 1999, Growthink has developed financial models for thousands of companies that have gone on to achieve tremendous success.

Click here to see how Growthink’s financial modeling services can create your complete financial plan for you.

Original text

This Business Plan Cash Flow Template is a tool for managing your business's expected revenue and expenses.

Copyright © 2024 SCORE Association, SCORE.org

Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

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• Example of a cashflow
• Business Finance
• Business plans and cashflow
• Back to Business plans and cashflow
• Writing your business plan
• Example of a business plan

As well as your business plan, a set of financial statements detailing you cashflow is essential. This will provide details of actual cash required by your business on a day-to-day, month-to-month and year-to-year basis.

The needs of a business constantly change and your cashflow will highlight any shortfalls in cash that will need to be bridged. Many established, viable, and even profitable businesses fail due to cash not being available when they need it most.

Good cashflow management is critical to running a successful business. You must be able to pay your bills while you await payment from your customers. There are many well-documented cases of businesses failing not because they weren't profitable but due to poor cashflow management.

You're in business to make a profit. It's a simple principle, but one that can occasionally become lost amid dreams of building multinational empires worth millions of pounds. You won't be able to stay in business, however, unless you have cash, hence the famous adage 'cash is king'.

There will probably be a time lag between your business providing its goods or services and getting paid. This means you have to make sure there is sufficient cash in your company's bank account for it to pay all its bills in the meantime – whether these relate to invoices from suppliers, employees' wages, rent, rates, tax, VAT or anything else.

Even if your business is profitable, there may be times when you are short of cash because you are awaiting payment for a large order. This is likely to be a particular problem during your first year when you are building up your business and don't have regular cash inflows.

The general principle of cashflow management is that you should speed up your cash inflows (customer payments, interest from bank accounts etc) and slow down your cash outflows within reason (purchase of stock and equipment, loan repayments and tax charges etc) as much as possible.

It can be difficult to affect your outflows other than extending your credit terms with your suppliers, which will often occur on fixed dates in the month and your employees and suppliers might also not take too kindly to you delaying payment to them. But there is more scope for you to improve your cash inflows.

This could mean billing regularly, chasing bad debt, selling your debt to a third party (factoring), negotiating extended credit terms with suppliers, managing your stock effectively (which could entail ordering little and often) and giving your customers 30-day payment terms.

Also, as businesses naturally have peaks and troughs, it is important that you put money away during the peaks so that you can dip into it during the troughs.

It is a good idea to think about investing in some accounting software to help you manage your cashflow. There are many software providers: an internet search should reveal the most common. Most provide software that can help you with cashflow analysis and forecasting, so that your business is never caught short of cash in the bank. Your accountant should be able to help advise you on which software package to buy.

How to use the cashflow forecast template

Our cashflow template will show you how a cashflow works and should be amended to suit your own business.

All figures to be entered are actual cash. This includes bank payments and receipts, cheques, bank transfers, cash payments and receipts – all of these should be included in your opening balance.  

Then complete the shaded area opening balance, which includes bank, loan and cash balances and should be put in the sheets:

• monthly cashflow forecast
• monthly actual cashflow

This provides the starting point for the rest of the cashflow. Next, input your month 1 forecast – all the sales broken down into the elements of your particular business – and do the same for expenditure. Base your figures on your own experience and what you forecast to receive or pay. The sections can be amended to reflect your business's requirements.

Repeat this process for the actual cashflow; here the figures you input are based on actual. This should then automatically be displayed in the third sheet:

• monthly cashflow forecast/actual comparison

This is where the real analysis work is done and will determine the accuracy of your forecast figures. The forecasts sheet should be used to determine when you may have a cash shortfall before the event arises and will help determine whether you will need to obtain additional funding.

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How to Create a Cash Flow Forecast, with Templates and Examples

By Andy Marker | August 26, 2020 (updated October 16, 2021)

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A cash flow forecast is vital for any company to assess its overall health, and to ensure it will have the cash necessary to pay the bills. This article includes expert advice on creating a basic cash flow forecast.

Included on this page, you’ll find the benefits of cash flow forecasts , the methods to create a cash flow forecast , downloadable templates , and an example cash flow forecast that shows why having a forecast is so critical.

What Is a Cash Flow Forecast?

A cash flow forecast provides estimates of a company’s future revenue and expenses. The forecast shows the cash a company will have on-hand at various future dates and is a vital financial document for any company.

In a cash flow forecast, “cash” refers to funds that are easily available and spendable — this includes money in checking and savings accounts, as well as other funds that you can quickly convert into cash to spend.

A simple cash flow forecast might take a few hours to create, and then about an hour to update, which you should do periodically.

Here are some primary ways a cash flow forecast can add value to your company:

• Liquidity Management: The forecast provides insight into how much cash a company will have on hand to pay upcoming bills. 
• Interest and Debt Reduction: Understand when your company can use available cash to pay down debt (this can reduce the credit card or loan interest the company has to pay).
• Half-Year or Full-Year Reporting: Gain insight into what your company’s six-month and full-year financial reports will look like.
• Overall Performance Gauging: Use the forecast to help determine whether revenue and cash flows are above or below expectations. These assessments can guide you in making any necessary changes.
• Long-Term Planning: Longer-term forecasts can help with your company’s three-year planning (or longer).

Cash Flow Forecast Challenges and Pitfalls to Avoid

Cash flow forecasting can present challenges if not done correctly. Pitfalls to avoid include using imprecise financial numbers or failing to perform regular cash flow forecasts at all.

Here are details on those and other challenges and pitfalls to avoid:

• Using Imprecise Financial Figures: In 2014, Kyriba, a company that offers cloud-based treasury management software, surveyed more than 200 financial professionals at companies. The survey found that only 32 percent of these employees thought their cash flow forecasts were mostly “accurate.” About 53 percent said their forecasts had “significant” variance. Eight percent said their forecasts were “very inaccurate, with major variances.”About two-thirds — 65 percent — of those respondents said the primary reason for the inaccuracy was they didn’t have the needed “visibility” into the financial numbers that the forecast needed and used. Sometimes this occurs because of poor communication between the departments who supply figures and the department creating the forecast. So, when the financial experts don’t have solid numbers, they make imprecise guesses, which leads to forecasts that can be significantly wrong.
• Having Difficulty in Forecasting Accounts Payable and Accounts Receivable: Companies need solid estimates of these items on the balance sheet in order to create a strong cash flow forecast. 
• Being Overly Optimistic about Future Revenues: We all believe that sales will improve in the next quarter, and improve even more in the quarter after that. But a cash flow forecast is useless if it’s not based on hard realities. Be accurate and realistic about your data — using rosy scenarios for revenue will only cause major problems when those forecasts don’t materialize. Worse, you won’t have money to pay your bills.
• Not Properly Documenting Your Current Financial Activities: Past revenue and expenditures help you accurately predict future cash flow.
• Not Performing a Cash Flow Forecast at All: Some of the above problems may make you avoid performing cash flow forecasts. Or, you may think they are unnecessary because your company is performing well and isn’t showing obvious cash flow problems. However, every company should do cash flow forecasts — even the most successful companies have cash flow variances that can cause problems if they aren’t addressed.

Potential Effects of Not Performing Proper Cash Flow Forecasting

Companies that don’t periodically perform cash flow forecasting often experience cash flow surprises. Those occurrences can cause problems in paying bills or require companies to find cash through financing with high interest rates.

In fact, these problems often cause more than inconvenient surprises. In 2018, a CB Insights study that analyzed 101 startup failures revealed that running out of cash was the second most common cause of business failure — about 29 percent of businesses failed for that reason.

Benefits of a Cash Flow Forecast

Cash flow forecasts provide a number of benefits. They help a company plan for periods when cash will be low, or when it might need financing. Forecasts also offer insight into the effects of sales programs or other business changes.

Here are some benefits of a cash flow forecast:

• Manage Cash Flow: The forecast will show the times when your company will experience surpluses or shortages of cash.

• Evaluate the Value of a New Project: A company may want to create a project cash flow forecast to analyze the revenues and costs from taking on a specific project or job. A project cash flow forecast also helps companies plan for major expenses related to a project. Construction companies and marketing and advertising agencies often create project cash flow forecasts. Learn more about project cash flow forecasts by reading this article.
• Mitigate Obstacles: A forecast can allow you to make adjustments and create contingency plans to deal with significant cash flow change.
• Spot Issues with Customer Payments: A forecast can highlight times at which customers are significantly or habitually late in making payments.
• Keep Suppliers and Employees Happy: Forecasts generally help companies avoid surprising cash shortfalls, which translates to on-time salaries and payments to employees and suppliers.
• Enhance Understanding of Customers and Suppliers: Your company can analyze how to engage customers that repeatedly pay late or suppliers that might offer discounts for upfront payments.
• Boost Profits: Forecasts allow you to track cash flow continually, which can lower borrowing and other costs, and keep your company profitable.
• Helps You Plan for Expected Sales: A forecast helps you plan for expected sales decreases or increases.
• Prepare for Expected Expenses: Forecasts help you plan for expected increases in expenses during a future period.
• Plan for Investments: A forecast can show when you’ll have surplus cash flow, so you can make investments to help your business grow. Menken says it’s vital “to forecast and have an idea of your cash flow, and whether or not an investment now is a good idea, or a growth strategy is a good idea or not.”
• Provide Insights into the Cost of Growth: A forecast will show you the future costs of investments in your business, from new employees to new equipment. Use that data to  analyze whether the investments are worthwhile.
• Reduce the Cost of Capital: A forecast indicates when you will run low on cash, so you can prepare for lower-cost financing.
• Gain Confidence in Your Financial Systems: Regularly scheduled cash flow forecasts will inform your company where your financial systems are working well or need tweaking.

How to Forecast Cash Flow

At its most basic level, a cash flow forecast assesses your organization’s current cash, and then forecasts cash inflows and outflows for a number of periods into the future. The forecast shows expected cash on hand at the end of each period.

Use this cash flow forecast template to provide basic details about your company’s projected cash flow. The template includes sections to list beginning and ending cash balances, cash sources, cash uses, and cash changes during the month. These details provide an accurate picture of your organization’s projected month-by-month financial liquidity. Ultimately, this template will help you identify potential issues that you must address in order for your business to remain on sound fiscal footing. 

Download Cash Flow Forecast Template

Excel | Smartsheet

You can find other cash flow forecast templates for specific situations by reading “ Free Cash Flow Forecast Templates .”

5 Basics Steps to Forecasting Cash Flow

There are basic steps that can help with your cash flow forecasting, such as assessing some past financial numbers. You’ll want to make projections on future revenue and costs based on those numbers, as well as other factors.

Here are some basic steps that can help your cash flow forecasting:

• Assess Past Financial Numbers: Take a look at your current and past cash flow statements. (You can learn more about cash flow statements and the formulas you need by reading, link for cash flow-formulas piece.) Review sales figures and overall revenue for the past couple of years, and assess basic expenses for those two years. This time period can give you a good sense of what to expect, including seasonal fluctuations and long-term trends.
• Factor in Some Basic Assumptions for the Future: These assumptions might include the expected change in the consumer price index, wage increases, and seasonal sales. 
• Estimate Revenue: Most of these numbers will come from weekly or monthly sales. Include any price increases (from both your company and its competitors), as well as other external factors. Then, add any non-sales revenue, like tax refunds and asset sales.
• Include Your Receivables Cycle: As part of (or connected to) your revenue estimates, factor in how much sales revenue will be paid in cash and how much will be paid over time. Don’t assume that all sales revenue will come in when your customers’ payments are due. Use payment history to determine what percentage of sales revenue will arrive on time and what percentage might appear in subsequent months.
• Estimate Likely Costs and Outflows: Using your past costs as a guide, estimate likely future expenses. Also include other expected outflows, including those for tax payments, loan payments, and purchase of assets.

Direct vs. Indirect Cash Flow Forecasting

You can perform a cash flow forecasting using either the direct or indirect method. The direct method , ideal for shorter periods, identifies all likely future inflows and outflows. The indirect method , which is best for longer terms, uses forecasts from other financial statements.

You can also use the direct or indirect method to generate cash flow statements.

Tools that Can Help with Forecasting

If you’re just getting started creating a cash flow forecast, a spreadsheet may be the only tool you need. However, as you continue to perform them, you might prefer using software that can automate the process. 

• Cash Flow Forecasting Software: Specialized software can help with cash flow forecasting. One option is LivePlan, which allows you to input financial figures, including sales, expenses, and other numbers for your business. A user can then alter projections to explore various scenarios and see how they affect cash flow and available cash.
• Creating a Spreadsheet: Menken, from The Art of Service, says a company can build a simple spreadsheet that has entries for basic inflows and outflows of cash, including rent, utilities, and wages. Include dates when you pay these bills and other less frequent outflows. “That is how you start to build your cash flow forecast,” she says. “Every day, you complete the spreadsheet for the day with the actual numbers, until you start to get a feeling for the cadence of the business. Do your clients pay on a certain date every month? Do you have subscription sales where you can predict when the money comes into your account? Start to pre-populate your spreadsheet for the next three to six months, until you’re confident it is giving you the correct information.” Then, she says, you can start working on a longer-term forecast.

Why Are Cash Flow Forecasts Important to Small Businesses?

Cash flow forecasts are important for any company, but they are especially critical for small businesses, which may have fewer cash reserves and less access to borrowing money.

• Fewer Cash Reserves: Larger companies may have larger funds of cash, but smaller companies may generally have just enough money on-hand to pay their normal monthly expenses. A month of unexpected costs can deplete those reserves to zero.
• Less Access To Credit: When cash begins to decrease, larger companies likely have more access to credit — from banks and investors, or through other means. Small businesses have fewer options for credit. For example, loans from the Small Business Administration often require an extensive application process. A small business has the time to move through that process only if it’s been able to forecast its cash issues far in advance.

How to Manage a Cash Flow Forecasting Process

In all but the smallest of organizations, a cash flow forecasting process will involve gathering data from several people or departments. In larger organizations, a treasury or finance team will manage the process.

Here are a couple of keys to success for an effective cash flow forecasting process:

• Get Data from People and Systems: A forecast depends on finance systems and statements your organization has already created, and their accuracy. Employees within your organization who understand those systems and that data are also key.
• Employee Buy-In Is Vital: Employees must understand the importance of the cash flow forecast, and be enthusiastic about providing the best data so they can help create the best possible forecast.

Cash Flow Forecasting Best Practices

Experts recommend a number of best practices to create the most accurate cash flow forecasts. Top suggestions include looking closely at past financial numbers; paying attention to unusual costs that might occur; and updating forecasts frequently.

Here are some additional essential best practices:

Get Input from Key People: Employees who understand your company’s financial numbers integrally can provide important input.

Analyze Key Indicators, Like Sales Forecasts: Pay attention to how changes your company makes can affect revenue and thus, your cash flow forecast. For example, a sales strategy to reach a broader group of potential customers can change a forecast.

Understand that Cash Flow and Revenue Are Different: Revenue on your income statement represents what you’ve sold, but not what’s been paid for. So, revenue is not cash or cash flow, and you can’t treat it as cash.“  

You might have a million dollars in sales, then use that million-dollar figure in all of your forecasting calculations,” says Sherif Hassan, CEO of Capiform , which provides smaller banks with an online platform to help them analyze credit and provide loans. Hassan, who also is the Founder and Principal for Syh Strategies, a strategic consulting firm, explains that it's a huge mistake to think that way: that million dollars isn’t in your bank account yet. “That might be the number one reason people run out of money and go out of business,” he shares. “Sales is not cash.”

Look Closely at All Potential Inflows and Outflows: Start with your recent and current financial numbers. Next, consider future factors, like consumer confidence and inflation. Take into account how quickly customers are paying for your company’s services or products, and whether you’re taking steps to improve that speed of payment. And, acknowledge any variability on your costs to do business.

Prepare a List of ‘Other’ Cash Inflows and Outflows: This exercise will help you identify all possible inflows and outflows. Use this time to think about any unusual inflow or outflows — those that don’t occur monthly and may not even occur annually. These might include inflows like tax refunds, government grants, or cash from the sales of assets. Outflows might include new equipment, new benefits from employees, or lawsuit settlements.

Create and Test Various Scenarios: Changing some key variables in your cash flow forecast can help you see how that affects overall cash flow. What if you decide to spend $200,000 to invest in equipment to improve production? What if you add three people to your sales team to bolster sales, or pay for an outside service to collect bad debt? The results of those scenarios can help you decide whether to make certain investments and think about how to bolster cash in various periods.

Timing Is Everything: Cash flow and cash flow forecasting are of course supremely affected by timing. Timing includes the date customers pay you, the date you must pay suppliers, and the date you pay quarterly federal taxes. You must ingrain all of those cash inflows and outflows — both recurring transactions and rare ones — within the forecast.

Monitor Results and Make Adjustments: Whether you do cash flow forecasting every week or every six months, ensure that is informed by actual results. If you do a cash flow forecast monthly, look at your cash flow statement (based on actual results) and make the necessary modifications. 

Build in Variances: Many companies build variances into their forecasts to account for unexpected costs or other small changes in totals. Include an “other” category in expenses that accounts for a small extra percentage of total costs.

Determine How Far Out You Want to Plan: Some companies perform a cash flow forecast every six months. Many others do it more frequently — some even perform weekly cash flow forecasts. If you have predictable annual inflows and outflows, creating a forecast every six months might be sufficient. If you’re a new business, or experience a continual flux in sales and costs, weekly (or even more frequent) forecasts might be necessary.

Don’t Forecast More than 12 Months in Advance: Trying to forecast more than 12 months in advance has limited value. There are too many variables that are impossible to predict more than 12 months out. The forecast you create for 18 months from today will likely be inaccurate.Menken says that cash flow forecasts too far into the future are “always garbage in and garbage out. You’re better off doing a good quality [forecast] over a shorter time. Do that for a couple of short time periods, until you get really good at it. Then, push it out to six months.”

Continually Evaluate: You may decide to perform cash flow forecasts monthly or quarterly. What if circumstances with your company change? Don’t think of any cash flow forecast as written in stone until it’s time to do another. Continually evaluate your budget and any major adjustments. Then, create a new forecast when it makes sense.

Difference between Cash Flow Forecast and Budget

A budget shows expected revenue and expenses for an entire set period (often 12 months). A cash flow forecast shows actual inflows and outflows of cash when they occur — on a monthly, weekly, or even daily basis.

The cash flow forecast reflects actual cash being spent and cash on-hand. A budget outlines income and expenses based on when they occur — not when you receive the income or pay for expenses. A budget also serves as more of a comprehensive planning document, outlining goals for revenue and spending over a year, for example.

Variables that Can Complicate a Cash Flow Forecast

A number of variables in revenue or expenses can complicate cash flow forecasting. They may be somewhat common and only occur occasionally, such as every month or every quarter.

It’s vital to try to predict and account for the following variables in any cash flow forecast:

• Months with an unusual number of paydays for employees. When a company pays employees every two weeks, there are months with three paydays. If your company pays employees every week, there are months with five paydays.
• Seasonal peaks and valleys in sales.
• The need to hire seasonal workers.
• Insurance and other annual payments, which can cause discrepancies on weekly, monthly, or quarterly cash flow forecasts.
• Quarterly estimated tax payments, which cause issues on weekly or monthly cash flow forecasts.

Discover a Better Way to Manage Cash Flow Forecasts and Finance Operations

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When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time.  Try Smartsheet for free, today.

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Mastering cash flow is key to unlocking growth for your eCommerce business

What is cash flow management.

In simple terms, it’s the process of tracking, understanding and optimising the amount of money that moves in and out of your business over a period of time.

You have positive cash flow when more money comes in than out, and negative cash flow if you have more outflows than inflows.

Improve your business cash flow through better planning

Mastering cash flow management is a huge advantage as an eCommerce business owner. You can plan your growth, predict any shortfalls and reduce overall business stress.

Having spoken to thousands of eCommerce founders, we recognise that keeping on top of your cash flow can be a tedious task. And let’s be honest, you probably don’t want to spend thousands on forecasting software that you need an MBA to navigate.

That’s why we’ve built a free cash flow management template . ‍

Get a download link now, straight to your inbox .

Want to learn more about cash flow? Below, we cover:

• How to get the most from our cash flow template
• Why cash flow is important for your business
• 5 expert tips for eCommerce cash management

How to get the most from our cash flow template: 5 steps to plan your growth

1. Set your timeframe

To plan and analyse your cash flow, you should be noting how much free cash (FCFF) is available at the start and end of a specific period. This can be a week or a month. The default for this template is a 12-month statement. In the Excel or Google Sheets spreadsheet, enter the start month and the amount of opening cash you have on hand at that time.

2. Note any expected cash injections, such as from debt, equity raises or personal savings

If you are expecting any cash injections throughout the year, you should note them down in the template. The most common forms are cash raised in exchange for equity, debt taken on from traditional banks or personal savings you are investing in the business. Plan ahead and estimate which months you expect to receive this cash inflow.

3. Forecast your revenues

Start by taking a look at your sales data for the last year or two of operations. This will give you an insight into sales patterns you need to identify sales trends that will help predict demand, like when sales could begin to pick up and which products are most popular. Use past data to guide your projections, but make sure to account for your growth ambitions too. You can split projected revenue into online sales (for example, via your Shopify, WooCommerce or other DTC store) and wholesale.

All DTC businesses experience some level of demand fluctuations. Fluctuations can be drastic, especially for seasonal businesses. If you anticipate sales fluctuations, especially coming in to Q4 with Black Friday and Cyber Monday, try to reflect this in your sales forecasts.

4. Estimate your cash outflows

After forecasting revenues, you’ll have a good idea of what sales demand will be and which products you need to meet that demand. Then you can begin assessing the cash outflows to understand what capital your business needs to capitalise on this demand.

This is important, because an eCommerce business’s ability to pay for product defines order size. If a business doesn't have access to financing, it might not be able to afford enough product to meet forecasted demand. This is particularly true for growing brands, whose future sales will outpace current operations, which means they won't have enough profit to buy product, and they will miss out on sales opportunities.

You should estimate and create a budget for the expenses you’ll need to pay to meet demand. Some of these will vary depending on seasonal fluctuations, such as inventory and marketing spend. Others remain relatively constant, even in the low season, such as rent, wages, and software subscriptions.

For inventory planning, it is important to understand lead times and payment terms. Lead time is the period of time between when you first place an order with a supplier and when you receive the shipment. In simple terms, it’s how long it takes a supplier to fulfil you order – and it has a big impact on your business.

Lead time dictates when you will need to place an order to prepare for seasonal demand and when you’ll need the funds to pay. It can vary greatly depending on the business and the industry it operates in.

For example, an eCommerce business that specialises in home and garden supplies will need outdoor patio furniture in stock when customers begin shopping for those items in the spring. Manufacturing this type of furniture takes months, translating to six-to-eight month lead time. This means the business would need to place the order in August to have products in stock by February, when it will begin receiving its first orders. The brand should also be prepared to pay a deposit when it places the order, which it won’t recoup until it sells the products months later.

While retailers selling garden furniture have months-long lead times, holiday chocolate sellers may only need to wait a few weeks for a supplier to fill their order. Consider when your demand fluctuations are, and estimate the cash outflows that are needed in advance to meet this demand. After forecasting revenues, you’ll have a good idea of what sales demand will be and which products you need to meet that demand. Then you can begin assessing the cash outflows to understand what capital your business needs to capitalise on this demand.

5. Analyse your projected cash position

When are the most capital intensive periods? Will I have enough cash on hand to fund my growth? Are there any periods when external financing could help my business

After completing the Excel template and getting a clearer picture of your projected cash flow for the year ahead, now you need to make important decisions to unblock any cash constraints, improve your cash flow management and maximise the chances of success for your business ‍

NOTE: This is intended to be a living document. You can run a scenario analysis to see how different forecasts will impact your business. It can be difficult to make accurate projections months in advance, but you should keep updating your estimates throughout the year as more information becomes available.

BONUS: Assess whether revenue financing would be good for your business

You should always maintain a cash buffer for the business to operate. When small business owners face a financial obstacle, 62% of them dip into their own personal funds to help them overcome it . But risking personal assets for a business venture is rarely the best option. That leaves one alternative: funding.

Outside financing is often a sound option to help build up a cash buffer. Deciding what type of funding is the best for your business is a big decision. One option that many DTC eCommerce businesses may consider is equity financing, which sees a business sell stock in the business to get capital. Another option is a traditional business loan, but for businesses with fewer assets to borrow against, traditional bank loans may not be an option.

Increasingly, however, eCommerce is turning to revenue-based funding, a type of financing that gives businesses access to working capital without giving up equity. This type of financing strategy raises non-dilutive capital by partnering with a financier like Wayflyer, which receives remittances as a percentage of sales and gives credit based on predictions for future sales.

You can use this cash flow planning template to see if Wayflyer can help unblock cash constraints for your business

Navigate to the bonus tab in the template and complete the highlighted section. You can enter how much funding you need and at what time period - for example, heading into BFCM. Enter various scenarios and assess how your cash position changes with Wayflyer’s funding, compared to your existing cash flow situation. As a next step, complete the form below and our experts will get in touch about the options available to you.

Cash flow 101: Three quickfire expert tips for eCommerce cash management

Paul Waddy has more than 12 years of eCommerce experience. He was ranked No. 2 on Inside Retail’s list of Top 50 People in E-Commerce , and he’s a seasoned adviser to some of Australia’s most well-known eCommerce brands.

Why is cash flow important to an eCommerce business?

A strong cash management strategy will make your eCommerce business more resilient and allow you to take cash out of your company with peace of mind. Ensuring you always have enough operating cash flow on hand is important because it allows you to meet existing financial obligations, be ready for any unexpected bumps ahead, and plan for your future growth.

We spoke to Waddy about his top cash management tips for keeping your business healthy and geared towards growth:

1. Hold 12 weeks of inventory to keep up with demand

eCommerce businesses should keep enough inventory on hand to cover manufacturing lead times and meet demand until their next batch of stock comes in. Importantly, they should hold enough stock to account for fluctuations in sales so that they don’t run out of cash if demand rises before a new batch hits.

“I would encourage anyone to check their month's cover – in other words, how much stock do I have on hand right now at a sales level?” Waddy says. “If I’m doing a million bucks in sales and I’ve got $3 million of stock on hand, I have 3 months’ cover.”

With that data, you can determine how quickly you’ll sell out and when you’ll need to reorder. That will also help you understand when you’re at risk of having too much inventory as your next order is arriving. You don’t want to have too much cash tied up in inventory. Crunch the numbers, and if you're getting close to the end of the month and holding too much stock, it’s time to run a sale.

2. Keep 10 weeks of cash on hand to stay resilient

While finding and then holding the right inventory levels is important, that can’t be your only focus. You also need to have money in the bank to acquire new customers and move your business forward in the long term. Plus, you need cash on hand to withstand those challenging periods where something goes wrong. Keeping at least 10 weeks of cash in the bank gives you a buffer to ride out any storms and operate with some wiggle room.

“You need to hold money in your bank account in order to hire new people, pay wages, do marketing – all of these things that are required as you grow,” Waddy says.

Plan for a rainy day and hold onto cash even when you’re growing. To figure out how much you need, Waddy recommends adding up only your fixed expenses for 10 weeks: staff wages, rent, and utilities, for instance. That’s the number you should target. Otherwise, it might be too late to access funding from financing providers once you really need it because they’re more likely to see you as a risk.

3. Deal with financial partners who understand eCommerce

You should seek out funding partners who have an eCommerce background to make sure you’re getting the most value for your brand. “There are nuances with eCommerce finances that just don’t exist for other businesses”, Waddy says.

Financing providers who have an eCommerce background will understand how to view the industry and your company’s place within it, giving you more value and better terms than other providers.

Instead of seeking out funding from a bank or a commercial lender that may not have the modelling or the background to properly assess your company’s potential, try a revenue-based financing provider like Wayflyer. You’ll get quick access to funds and flexible remittance terms – because we're deeply ingrained in the world of eCommerce, and we want to see founders succeed.

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How to Prepare a Cash Flow Statement

• 07 Dec 2021

Cash flow statements are one of the three fundamental financial statements financial leaders use. Along with income statements and balance sheets, cash flow statements provide crucial financial data that informs organizational decision-making. While all three are important to assessing a company’s finances, some business leaders might argue that cash flow statements are the most important.

Business owners, managers, and company stakeholders use cash flow statements to better understand their companies’ value and overall health and guide financial decision-making. Regardless of your position, learning how to create and interpret financial statements can empower you to understand your company’s inner workings and contribute to its future success.

Related: The Beginner's Guide to Reading & Understanding Financial Statements

Here’s a look at what a cash flow statement is and how to create one.

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What Is a Cash Flow Statement?

A cash flow statement is a financial report that details how cash entered and left a business during a reporting period.

According to the online course Financial Accounting : “The purpose of the statement of cash flows is to provide a more detailed picture of what happened to a business’s cash during an accounting period.”

Related: How to Read & Understand a Cash Flow Statement

Since cash flow statements provide insight into different areas a business used or received cash during a specific period, they’re important financial statements for valuing a company and understanding how it operates.

A typical cash flow statement comprises three sections: cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities.

If you’re wondering how to make a cash flow statement, these steps can guide you through the process, from gathering initial data to calculating the final cash balance.

How to Create a Cash Flow Statement

1. Determine the Starting Balance

The first step in preparing a cash flow statement is determining the starting balance of cash and cash equivalents at the beginning of the reporting period. This value can be found on the income statement of the same accounting period.

The starting cash balance is necessary when leveraging the indirect method of calculating cash flow from operating activities. However, the direct method doesn’t require this information.

2. Calculate Cash Flow from Operating Activities

Once you have your starting balance, you need to calculate cash flow from operating activities. This step is crucial because it reveals how much cash a company generated from its operations.

Cash flow from operations are calculated using either the direct or indirect method.

Direct Method

The direct method of calculating cash flow from operating activities is a straightforward process that involves taking all the cash collections from operations and subtracting all the cash disbursements from operations. This approach lists all the transactions that resulted in cash paid or received during the reporting period.

Indirect Method

The indirect method of calculating cash flow from operating activities requires you to start with net income from the income statement (see step one above) and make adjustments to “undo” the impact of the accruals made during the reporting period. Some of the most common and consistent adjustments include depreciation and amortization.

Related: Financial Terminology: 20 Financial Terms to Know

The direct and indirect methods will result in the same number, but the process of calculating cash flow from operations differs.

While the direct method is easier to understand, it’s more time-consuming because it requires accounting for every transaction that took place during the reporting period. Most companies prefer the indirect method because it's faster and closely linked to the balance sheet. However, both methods are accepted by Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).

Related: GAAP vs. IFRS: What Are the Key Differences and Which Should You Use?

3. Calculate Cash Flow from Investing Activities

After calculating cash flows from operating activities, you need to calculate cash flows from investing activities. This section of the cash flow statement details cash flows related to the buying and selling of long-term assets like property, facilities, and equipment. Keep in mind that this section only includes investing activities involving free cash, not debt.

4. Calculate Cash Flow from Financing Activity

The third section of the cash flow statement examines cash inflows and outflows related to financing activities. This includes cash flows from both debt and equity financing—cash flows associated with raising cash and paying back debts to investors and creditors.

When using GAAP, this section also includes dividends paid, which may be included in the operating section when using IFRS standards. Interest paid is included in the operating section under GAAP but sometimes in the financing section under IFRS.

5. Determine the Ending Balance

Once cash flows generated from the three main types of business activities are accounted for, you can determine the ending balance of cash and cash equivalents at the close of the reporting period.

The change in net cash for the period is equal to the sum of cash flows from operating, investing, and financing activities. This value shows the total amount of cash a company gained or lost during the reporting period. A positive net cash flow indicates a company had more cash flowing into it than out of it, while a negative net cash flow indicates it spent more than it earned.

Cash Flow Statement Example

Understanding cash flow statements can help you manage your business's finances by revealing not just the amounts but also the sources and uses of cash. To help visualize each section of the cash flow statement, here’s a cash flow statement example of a fictional company generated using the indirect method.

Go to the alternative version .

This cash flow statement is for a reporting period that ended on Sept. 28, 2019. As you'll notice at the top of the statement, the opening balance of cash and cash equivalents was approximately $10.7 billion.

During the reporting period, operating activities generated a total of $53.7 billion. The investing activities section shows that the business used a total of $33.8 billion in transactions related to investments. The financing activities section shows that a total of $16.3 billion was spent on activities related to debt and equity financing.

At the bottom of the cash flow statement, the three sections are summed to total a $3.5 billion increase in cash and cash equivalents over the course of the reporting period. Therefore, the final balance of cash and cash equivalents at the end of the year equals $14.3 billion.

The Difference Between a Balance Sheet and a Cash Flow Statement

The balance sheet and cash flow statement are fundamental tools in financial analysis. However, these documents serve distinct purposes and offer different insights into your organization's financial health .

A balance sheet provides a snapshot of a company's financial position at a specific point in time, detailing assets, liabilities, and shareholders' equity. As a result, it offers an overview of what a company owns and owes. In contrast, a cash flow statement focuses specifically on the movement of cash within an organization over a reporting period, categorizing cash activities into operating, investing, and financing activities.

Therefore, the cash flow statement is crucial for understanding the liquidity and operational efficiency of the business, which is vital for day-to-day operations and strategic planning .

How to Enhance Decision-Making with Financial Statements

Understanding how to create, interpret, and effectively use financial statements is pivotal for strategic decision-making. Financial statements, particularly, are essential tools that extend beyond simple record-keeping that can guide your business strategy .

The cash flow statement is crucial because it delves into how a company manages its cash—detailing how cash is generated from everyday operations, how it’s reinvested back into the business, and how it’s allocated in financing efforts. These insights are indispensable for evaluating a company’s liquidity and financial agility.

Understanding the cash flow statement is key to answering vital business questions, such as:

• Is the company generating enough cash from its core operations to sustain itself?
• Are the capital investments proportionate to the available cash?
• Is the financial strategy effective over the long term?

By learning how to create and analyze cash flow statements, you can make better, more informed decisions, regardless of your position.

Are you interested in gaining a toolkit for making smarter financial decisions and the confidence to clearly communicate them to key stakeholders? Explore Financial Accounting —one of three courses comprising our Credential of Readiness (CORe) program —to discover how you can unlock critical insights into your organization’s performance and potential. Not sure which course is right for you? Download our free business essentials flowchart .

This post was updated on June 13, 2024. It was originally published on December 7, 2021.

Data Tables

Company a - statement of cash flows (alternative version).

Year Ended September 28, 2019 (In millions)

Cash and cash equivalents, beginning of the year: $10,746

OPERATING ACTIVITIES

INVESTING ACTIVITIES

FINANCING ACTIVITIES

Increase / Decrease in Cash and Cash Equivalents: 3,513

Cash and Cash Equivalents, End of Year: $14,259

Go back to the article .

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