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Cash Flow Projection: How To Create A Cash Flow Forecast

Cash flow projection can be vital, especially for small business

Cash flow projection can be vital, especially for small business owners who want their business to grow commercially and run a successful business.

In this article, you will get a better understanding of “what is cash flow projection?” and “how to create a cash flow forecast?” to streamline your business.  

Do you know that almost half of the businesses fail because they run out of capital, and more than 50% of small business owners don’t give accounting and bookkeeping real significance?


Cash flow projection is breaking down the cash flow of a business. The cash inflow and outflow help understand your business’s revenue and expenditure, giving a broad outlook of your business’s financial health. 

Knowing and prophesying your business’s cash flow can support making better decisions, building strategies, and eventually evading uninvited cash flow problems. 

Later on, cash flow forecasting supports you to have a better understanding of the upcoming month’s financial status.

Whether it’s going to favor your financial account or a money crunch going to knock on your doors, can help you plan accordingly on your expenses, saving, or investing starting from today onwards. 

In case, cash flow projection states that you will have more than usual costs or less than usual incomes, it may not be the right time for a new investment.

On the other hand, if the projected cash flow showcases surplus capital, it is the right investment time. 

How To Create a Cash Flow Projection: The Basics?

For preparing a cash flow forecast the right way, there are two basic concepts you need to comprehend:

Accounts Receivable and Accounts Payable. 

Accounts receivable refers to the cash that is expected to be collected. It includes deposits and payments by customers, along with rebates, government grants, lines of credit, as well as bank loans.

On the contrary, Accounts Payable is the exact opposite of what accounts receivable is, including all the business’s money-expenses like taxes, payroll, salaries, payments to merchants, rent, inventory, etc.

Cash flow forecasting is essential because of the breakdown of anticipated receivables than payables.

Eventually it gives an outlook of the expected cash flow in the business needed every month. Such a forecast typically takes less than an hour.

Still, it can be helpful in the long run for the owners to recognize and prepare for possible problems and make wiser decisions while operating their business.

Cash Flow Projection Infographic

Stay Sensible with Your Cash Flow Forecast

For a robust cash flow forecast, be practical with the numbers behind. Being unnecessarily bountiful with your sales estimations can jeopardize its efficiency.

Moreover, if you give clients a payment schedule and a chance to pay the majority of their share on the last day scheduled, be very clear with the projection of the same to be correctly showcased.

While equating the payables, try to envision annual as well as quarterly checks.

Strategies for an extended tax rate in case the business is destined to thrive commercially.

Those who pay their employees every week need to keep track of all the payrolls while maintaining proper books. 

Add another expense category in your projected cash flows, which determine some portion of income for an unannounced expense.

Keeping some extra cash for an emergency is vital for first projections and prepared for future mishaps. 

Recommended Article: How to Calculate Cash Flow: 3 cash flow formulas with examples

Cash flow projections to make data-driven decisions

Preparing an accounting chart is a vital task, but it’s only relevant for business insights. Rather than hiding it for the rest of the month, get your projected cash flow consulted while making significant business decisions. 

In case you predict a shortfall in the next month, contemplate ways for cost-cutting, increasing sales, and savings to make up the shortfall. If the payments are usually late, introduce a penalty on overdue bills. 

Consulting your cash flow projection can be a fruitful step while deciding the right time to invest in new facilities, hiring employees, revising your prices and payment cycles, or considering when and how much to offer discounts and promotions.

Enhancing the proficiency of cash flow projections

Once you’ve developed a habit of preparing cash flow projections, it becomes convenient to better their efficiency over some time. 

When the projection is compared with the actual result, it can give you a better idea of the pros and cons of your business’s financial health and performance.

It helps in improving the accuracy and identifying patterns in the long-term. Biennial variations in income, patterns that add to late payments, and cost-cutting possibilities will manifest more with each projection. 

Business owners can use their cash flow projections to make the right decisions and better operators by each passing month. 

Cash Flow Projection Example

Cash Flow = Cash Received – Cash Spent

Let’s have a look at an example of a project cash flow statement below:

project cash flow statement example
cash flow cycle


Using a good cash flow management tool or outsourcing affordable accounting services will help prevent potential downsides and improves your cash flow projections. 

eBetterBooks will support you to perform an optimal control of Cash Flow in your company.

By : July 10, 2024
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