A cash flow projection estimates the money expected to flow in and out of a business over a period of time, usually 12 months. It involves calculating estimated receivables/cash in such as revenue and loans, and estimated payables/cash out like expenses, to determine if the business will have surpluses or shortfalls. Creating a cash flow projection can help a business predict cash needs, prove ability to repay loans, and make strategic financial decisions.

8. Cash flow projection is a breakdown of the money that is
expected to come in and out of your business. This includes
calculating your income and all of your expenses, which will
give your business a clear idea on how much cash you'll be left
with over a specific period of time.
If, for example, your cash flow projection suggests you’re going
to have higher than normal costs and lower than normal
earnings, it might not be the best time to buy that new piece of
equipment.
On the other hand, if your cash flow projection suggests a
surplus, it might be the right time to invest in the business.

9. Cash flow projections: The basics
In order to properly create a cash flow forecast, there are two concepts
you should be aware of: accounts receivable (cash in) and accounts
payable (cash out)
Accounts Receivable: refers to the money the business is expecting to
collect, such as customer payments and deposits, but it also
includes government grants, rebates, and even bank loans and lines of
credit.
Accounts Payable:refers to the exact opposite—that is, anything the
business will need to spend money on. That includes payroll, taxes,
payments to suppliers and vendors, rent, overhead, inventory, as well as
the owner’s compensation.

10. A cash flow projection (also referred to as a cash flow forecast) is
essentially a breakdown of expected receivables versus payables. It
ultimately provides an overview of how much cash the business is
expected to have on hand at the end of each month.
Cash flow projections typically take less than an hour to produce but can go
a long way in helping entrepreneurs identify and prepare for a potential
shortfall, and make smarter choices when running their business.

11. Calculating your cash flow projection can seem intimidating at first, but once
you start pulling together the necessary information, it isn’t so scary. Let’s
walk through the first steps together.
1. Gather your documents
This includes data about your business’s income and expenses.
2. Find your opening balance
Your opening balance is the balance in your bank at the start of a period. (So,
if you’ve just started your business, this is zero.)
Your closing balance is the amount in your bank at the end of the period.
So the opening balance in one month should equal the closing balance at the
end of the previous month. But more on this later.

12. 3. Receivables (money received/cash in) for next period
This is an estimate of your anticipated sales (such as invoices you expect to be
paid, or payments made on credit), revenue, grants, or loans and investments.
4. Payables (money spent/cash out) for next period
Again, this is an estimate. You should consider things like materials, rent,
taxes, utilities, insurance, bills, marketing, payroll, and any one-time or
seasonal expenses.
“Seasonality can have a material effect on the cash flow of your business,”
Andy Bailey, CEO of Petra Coach, wrote in an article for Forbes. “A good
cash flow forecast will anticipate when cash outlays and cash receipts are
higher or lower so you can better manage the working capital needs of the
company.”

13. 5. Calculate cash flow
Now, let’s bring it all together using this cash flow formula: Cash
Flow = Estimated Cash In – Estimated Cash Out
6. Add cash flow to opening balance
Now, you’ll want to add your cash flow to your opening balance,
which will provide you with your closing balance.
Put it all together: How a cash flow projections look on paper
In practical terms, a cash flow projection chart includes 12 months
laid out across the top of a graph, and a column on the left-hand side
with a list of both payables and receivables.

14. Cash flow is the amount of money going in and out of your business. Healthy
cash flow can help lead your business on a path to success. But poor
or negative cash flow can spell doom for the future of your business.
If you want to predict your business’s cash flow, create a cash flow
projection. A cash flow projection estimates the money you expect to flow in
and out of your business, including all of your income and expenses.
Typically, most businesses’ cash flow projections cover a 12-month period.
However, your business can create a weekly, monthly, or semi-annual cash
flow projection.

15. Advantages of projecting cash flow
•Estimating anticipated cash flow projections can help boost your
business’s success.
•Projecting cash flows has many advantages. Some pros of creating a
cash flow projection include being able to:
•Predict cash shortages and surpluses
•See and compare business expenses and income for periods
•Estimate effects of business change (e.g., hiring an employee)
•Prove to lenders your ability to repay on time
•Determine if you need to make adjustments (e.g., cutting expenses)

16. Cash flow projection isn’t for every business. Your projected cash flow
analysis can be time-consuming and costly if done wrong.
Keep in mind that cash flow predictions will likely never be perfect.
However, you can use your projected cash flow as a tool to
help manage cash flow.
The bottom line is, your cash projections give you a clearer picture of
where your business is headed. And, it can show you where you need to
make improvements and cut costs.

18. Creating a projection of cash flow
If you want to create your own cash flow projection, start drafting
out columns for your future periods. Or, you can take advantage of a
spreadsheet to organize your cash flow statement projections.
You should include the following categories in your cash flow
projection:
Opening balance
Cash in (e.g., sales)
Cash out (e.g., expenses)
Totals for cash in and cash out
Uses of cash (e.g., materials)

19. 1. Find your business’s cash for the beginning of the period
To calculate your cash from the beginning of the period, you need to
subtract the previous period’s expenses from income.
Cash at Beginning of Period = Previous Period’s Income – Previous
Period’s Expenses
2. Estimate incoming cash for next period
Next, you need to predict how much cash will come into your
business during the next period.
Incoming cash includes things like revenue, sales made on credit,
loans, and more.
You can forecast future cash by looking at trends from previous
periods. Be sure to account for any changes or factors that differ from
previous periods (e.g., new products).

20. Estimate expenses for next period
Think about all the expenses you will pay next period. Consider things like
raw materials, rent, utilities, insurance, and other bills.
Subtract estimated expenses from income
To calculate your business’s cash flow, subtract your estimated expenses from
your estimated income.
Cash Flow = Estimated Income – Estimated Expenses
Add cash flow to opening balance
After you calculate cash flow, you need to add it to your opening balance.
This will also give you your closing balance. Your closing balance will carry
over to act as your starting balance for the next period.