Cash flow projections are incredibly useful for a number of reasons. First, 60% of business owners have cash flow problems. This affects their ability to meet payroll, buy products for resale, and handle surprises. Making cashflow projections is also helpful for securing bank loans or investment.
It’s pretty simple to do. Just follow these steps.
Making a Cashflow Projection
- In excel, or any spreadsheet program, make a 12 months of columns, starting in column B.
- In Column A, makes some names. This will include money in (beginning cash, owner investment, bank loans, sales), money out: all your fixed costs like (rent, electricity, and insurance) and variable costs (labor, cost of buying merchandise for resale, and any other expense that goes up as you sell more).
- Sales outstanding should play a role too. If you take most of your sales the same day, don’t worry about this. Sales outstanding shows roughly how much money you’ll likely receive from people who owe you in a month. (Accounts Receivable / Sales) X 30. 30 in this case is days per year. Make this your sales, adding to it any sales you make the same day in cash. Total your money in. Total your money out. Subtract money out from money in. That is your current month’s projected cash flow. This becomes your beginning cash for the next month.
- You will need to adjust based on economic factors. While nothing is set in stone, opening a new location, starting a new product line, a competitor opening up nearby – all these things should affect sales and expenses. Keep that in mind.
This should get you started. This article in QuickBooks covers most of what I said here, plus further benefits of using cash flow projections.
As your bookkeeper, I can reduce your expenses and help you find deductions. I can also give you reporting that helps you make good decisions and meet your business goals. This saves you 80+ hours per year compared to doing it yourself. Schedule a bookkeeping call and we can start the process.