Business Plan Help

Cash Flow Projection Help

Explanation of Terms: Cash Flow Projection

Many business owners consider a Cash Flow Projection to be the most important tool in the business plan. It calculates how much cash runs in and out of the business every month, adjusting for seasonal business cycles and quarterly and/or annual expenses that don’t occur every month. It will determine ahead of time if a business has enough working capital to survive, and allows a business owner to plan accordingly before they find themselves “cash tight”.

“Cash” means any form of income that can be converted to cash such as checks, credit card deposits, and cash. Income from Accounts Receivable is only posted to a Cash Flow Statement when it is actually received, so the Cash Flow Projections will differ greatly from an Income Projection (which counts all sales as they occur - even though no cash was received). Likewise a loan to the company would not count as actual income and so would not show on an Income Statement, but will show on a Cash Flow Statement or Projection (it was cash that was received).

In a Cash Flow Projection you will begin by entering what the balance is in the checking account at the top of the first column, then enter all cash expected for that month and all payments expected to be made that month. You will end up with the cash available at the end of the month after all payments have been made, and this figure is then the “beginning cash balance” at the top of the sheet for the next month.

Insure that quarterly payments, such as payroll tax deposits, are projected during the periods they are due. Likewise, business accounting costs will most likely all occur during the month their accountant prepares their taxes and should be entered accordingly.

Terms:

Beginning Cash Balance: Amount in the checking account at the beginning of the period.
Cash Inflows (Income): Monies received during the period in the form of cash, checks, or credit card deposits.
Accounts Receivable Collections: Cash received from charges made during previous months.
Loan Proceeds: Any loans taken out by the company and deposited into the checking account will be entered here.
Sales and Receipts: Any sales that were paid for during this period.
Other: Any other cash received (such as a donation or gift).

Cash Outflows (Expenses): All payments made by the company during this period.
Other: Note: A new business starting up will have one-time expenses such as security deposits, registration fees, and other expenses that will not be repeated. These can be entered here with an explanation.