A cash flow projection shows your future income and expenses as well as the total cash you will have available in the coming months. The cash flow projection is an important tool to keep track of your cash and to manage it in the best possible way. Here we show you how to create such a projection and how to work with it.
A projected cash flow shows the incoming and outgoing cash flows expected in future weeks and months. In preparing it, one projects all the incoming and outgoing payments that one expects into the future.
This helps to estimate favourable times for investments and shows at an early stage when a cash shortage might occur. This gives you enough time to initiate measures and prepare for upcoming situations in the best possible way. The projected cash flow is therefore an important tool for those responsible to optimally manage their liquid funds within the company.
The projected cash flow statement is prepared at the beginning of the business year. The cash flow statement from the previous business year serves as the basis. Based on the past cash flow balance, a projected cash flow balance is prepared by estimating the expected cash flows for the coming year.
This makes it possible to assess how the cash flow balance will look at the end of the year. If, for example, large investments are planned for a year, it is also possible to see whether sufficient cash is available for financing or whether a loan will have to be taken out.
In order to create a cash flow projection, one must first know the current cash flow. To do this, it is helpful to get a detailed overview of the incoming and outgoing payments of the last three to six months. This gives you an immediate impression of how high recurring payments are. Since the amount of these payments is always the same, it is very easy to project them into the future.
Group your deposits and withdrawals into categories, for example like this:
- Revenue from sales
- Income from financial investments
- Tax refunds
- Revenue from licences
- Other revenues
- Salary payments and wages
- Expenses for marketing
- General expensens (electricity, bin collection, etc.)
- Fees for software subscriptions and licenses
- Tax payments
There may be many more categories in your business. It is important that you record all incoming and outgoing cash flows so that you get as accurate a picture as possible of your current cash.
Then enter all the categories in a table. This can look like this:
|Cash flow balance at start of year: £3,000||January||February|
|Revenue from sales||£5,000||Cell|
|Income from financial investment||£500||Cell|
|Salary payments and wages||£2,000||£2,000|
|Expenses for marketing||£500||£400|
|Fees for software||£100||£100|
|BALANCE per month||£4,400||-£500|
The cash balance is calculated as follows:
- Add up all revenues and expenses within one month
- Subtract the total expenses from the total revenues in each month: you get the cash flow in that month.
- Set off the cash flow of the current month against the cash balance of the previous month: You get the cash balance for the current month.
With the help of a cash flow projection template you can record your revenues and expenses very accurately. You can download a free cash flow projection template here and adapt it to your needs.
In order for the cash flow projection to reflect reality, you must estimate the expected inflows and outflows as accurately as possible. To do this, you can proceed as follows:
- Recurring revenues and expenses that always have the same or a similar amount each month can be carried over 1:1 into the coming months (e.g. salary payments and general expenses).
- To estimate your upcoming revenues, it is helpful to carry out a market analysis or to ask your sales staff about the expected development of demand.
- For example, if you expect a decrease in customer demand, enter a smaller value for "Revenue from sales" in the coming months.
- Go through each category in this way and, if necessary, obtain further information in order to make concrete estimates for the respective categories
After the table is complete, you have a cash flow projection for the whole year. You can also use this as input for your projected cash flow statement for the coming year.
When you fill out the Excel template, you probably realise very quickly that this activity takes a lot of time. First you have to look at the transactions on all your bank accounts and categorise the respective deposits and withdrawals and then add them up.
Many mistakes can happen in the process: You mistype, distort figures, or overlook transactions in your bank accounts. The cash flow projection is then not accurate and you make your decisions on the wrong data.
To avoid all this, you can use special cash flow management software instead of an Excel template, for example Agicap. The tool automatically connects to your bank accounts, retrieves all transactions daily and automatically classifies recurring income and expenses into categories. So you always have an up-to-date cash flow.
You can also enter your budget figures into Agicap and create a cash flow projection for the coming months. The projection is automatically updated daily when your account balances change. This gives you a reliable data basis at all times and makes it easier for you to make better decisions for your business.