Projected Cash Flow

7.5 Projected Cash Flow for Year 1

If the profit projection is the heart of your business plan, cash flow is the blood.

Businesses fail because they cannot pay their bills. Every part of your business plan is important, but none of it means a thing if you run out of cash.

The point of this worksheet is to plan how much you need before startup, for preliminary expenses, operating expenses, and reserves. You should keep updating it and using it afterward. It will enable you to foresee shortages in time to do something about them—perhaps cut expenses, or perhaps negotiate a loan. But foremost, you shouldn’t be taken by surprise.

There is no great trick to preparing it:  The cash-flow projection is just a forward look at your checking account.

You have already completed this when you prepare the budget, if you carefully thought about when in the year revenue and expenses will be realized.

For each item, you determined when you actually expect to receive cash (for sales) or when you will actually have to write a check (for expense items).

Your cash flow will show you whether your working capital is adequate. Clearly, if your projected cash balance ever goes negative, you will need more start-up capital. This plan will also predict just when and how much you will need to borrow.

Explain your major assumptions, especially those that make the cash flow differ from the Profit and Loss Projection. For example, if you make a sale in month one, when do you actually collect the cash? When you buy inventory or materials, do you pay in advance, upon delivery, or much later? How will this affect cash flow?

Are some expenses payable in advance? When?

Are there irregular expenses, such as quarterly tax payments, maintenance and repairs, or seasonal inventory buildup, that should be budgeted?

Loan payments, equipment purchases, and owner’s draws usually do not show on profit and loss statements but definitely do take cash out. Be sure to include them.

And of course, depreciation does not appear in the cash flow at all because you never write a check for it.

Because the cash flow projection is a very detailed report, in the body of the plan include a summary report, including total revenue, total expenses, and net income for the first twelve months of your SE, and include the detailed report for each item in the attachments.  Make sure to tell the story behind your report (if there are some months in negative, how you plan to cover them, etc.), and refer to the attachment in the body of the plan.