Part 3: The Cash Flow Projection
The Cash Flow Projection part of your Financial Statement shows how much cash is expected to be flowing in and out of your business. This is important because it lets you know when your expenditures are too high or when you may want to arrange short term investments so you’ll have easy access to money just incase of a cash flow surplus. The cash flow projection will give you an idea of how much capital investment your business idea needs.

Cash Flow ProjectionThe Cash Flow Projection shows bank loan officers that your business is a good credit risk. It will show them that there will be enough cash on your and your business that will make for a good candidate for a line of credit, on a short term loan.

Make sure you don’t confuse the Cash Flow Projection with a Cash Flow Statement. The Cash Flow Statement shows shows how much cash flows in and out of your business.

In simpler terms, it describes the cash flow that has occurred in the past. The Cash Flow Projection will show how much cash is anticipated to be generated or expended over a certain amount of time in the future.

Even though both Cash Flow reports are important we are only concerned with the Cash Flow Projection in the Business Plan. You will want to show a Cash Flow Projections for each month your business is running over a year period as part of your Financial Plan section of your business plan.

There are 3 parts to the Cash Flow Projection

  1. First part details your Cash revenues. Enter your estimated sales figures for each month and remember that these are Cash Revenues; meaning that you’ll only enter what sales you have collectible in cash during that month.
  2. Second are your cash disbursements. Take your various expense categories from your ledger and list your cash expenditures you expect to pay for that month for each month.
  3. Third part is the Reconciliation of Cash Revenues to Cash Disbursements. Reconciliation suggests that this section starts with an opening balance which is the carryover from the previous month’s operations. The current revenues earned are then added to this balance and the disbursements are subtracted. And then the adjusted cash flow balance is carried on to the next month.

Here is a basic outline for a Cash Flow Projection that you may consider using for your Business Plan or when you get your business up and running.

CASH FLOW PROJECTIONS
Cash Revenues
Revenue from product sales
Revenue from Service Sales
TOTAL Cash Revenues:

Cash Disbursements
Cash payments to trade supplies
Management draws
Salaries and wages
Promotion expense
Professional fees paid
Rend and mortgage payments
Insurance
Utility payments
Telecommunications payments
TOTAL Cash Disbursements:

Reconciliation of Cash Flow
Opening Cash Balance
Add: TOTAL Cash Revenues
Subtract: Total Cash Disbursements
Closing Cash Balance

Just remember that your Closing Cash Balance is carried over to next month, and remember that you may need to delete and add appropriate revenue and disbursement categories that apply to your business or business idea.

One of the biggest problems and dangers in putting together a Cash Flow Projection is being over optimistic about your projected sales.

Now that you have your Cash Flow Projections done, you now need to move on to the Balance Sheet.

Part 1: The Financial Plan of The Business Plan - Financial Statement
Part 2: The Financial Plan of The Business Plan - Income Statement
Part 3: The Financial Plan of The Business Plan - Cash Flow Projections

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