How to Create a Cash Flow Projection If You Don’t Have an Accounting Platform

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By Paul Chappel

Topics: Cash Flow

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Cash flow is, in many ways, more important than statements of gross income or even net income. On paper, you’re in the black, but in reality, your accounts keep dipping into the red as cash comes and goes. To weather the storm, you need a cash flow projection.

What is the purpose of a cash flow projection?

A cash flow projection shows you when cash is coming into the business, as invoices come due and are paid, and when it’s going out to pay your business expenses and bills. Having a projection gives you an idea of when you’ll be awash with cash and when things might be tighter. With the projection in hand, you can plan to tide yourself over whenever it seems like you may fall short.


Creating a Cash Flow Projection

As mentioned, you need a cash flow projection to show you when the money is coming in and when it’s going out. This helps you visualize when you’ll have some extra funds or when you’ll need to borrow to keep your business running smoothly. With a projection, you can strategize to fill in the gaps.

If you don’t have an accounting platform, creating a cash flow projection in a spreadsheet is relatively simple. To get started, you’ll want to open a new spreadsheet document in Excel or use a cash flow forecast template.

Create a table with 12 columns. Each one represents a month of the year. Now you’ll begin to fill in the details, as we describe below.


Project Your Cash Outflows

Whether you’re a new or existing business, it’s likely easiest to start with your cash outflow. Outflows tend to be somewhat more reliable than inflows. After all, your internet service provider will want to be paid, and the electricity bill will come in the mail every month.

Existing businesses can use last year’s costs to estimate their cash outflows for the following year. Remember to account for inflation and adjust your costs upwards.

You’ll also want to budget for larger outflows, particularly if you know they’re on the radar for this fiscal year. Besides salaries and HR costs, some of your biggest outflows will be your cost of goods sold (COGS). Other expenses to add include marketing and advertising, equipment purchases, and even bank fees and debt repayments.


Projecting Inflows

Now for the hard part. It’s always more difficult to estimate cash inflow, or gross revenue, even for existing businesses. There may be a downturn in the market, or customers may decide to scale back on their purchases. Maybe February is usually busy for you, but this year, the rush doesn’t come until September.

There will always be ups and downs in your cash inflow, which is why you’re creating this projection in the first place.

Existing businesses can use previous years’ earnings to estimate, on average, monthly income. If the business is growing, you may want to adjust income upwards slightly. In fact, it’s often wise to create three scenarios: growth, flat, and decline.

While decline is not the scenario you want, this worst-case scenario can help you prepare for the unexpected.


Managing Your Cash Flow

Now that you can see an estimation of what’s coming into the business and what’s going out, you can begin planning. If the business has very high outflows but low inflows, you may look at options for cutting back expenses.

If the outflow-inflow imbalance is temporary, you may want to look at options for funding the business through these low inflow times. Freeing up cash through short-term working capital loans and unique credit card products is an easy, hassle-free way to help you weather the storm.

As you can see, a cash flow projection can help you visualize your expenses and your income. It helps you rationalize your funds and spend them wisely, so you can keep the business running smoothly throughout the year.

Disclaimer

The information in this article is for educational and information purposes only and should not be relied upon for decision making. Always seek the expertise of a professional advisor or accountant prior to making any decisions.

Paul Chappel

As Vice President, Partner Success, Paul heads up partner relationships, developing, fostering, and supporting WayPay’s growing set of strategic alliances. With 20 years of experience in financial services and lending, Paul brings industry-leading insight into the team to help strengthen our product offering for clients. His coaching, support, and leadership of the sales team ensure that our clients are kept up-to-date with not only the latest WayPay product offerings but also industry and SMB best practices.