How to create a simple cash-flow projection for your business

How to create a simple cash-flow projection for your business

Posted: Tue 1st Oct 2019

Managing cash flow can be a bit tricky in the early stages of starting a business, as you can't really predict – with accuracy – how many customers you're going to have or sales you're going to make.

This simple exercise from business mentor Carole Watson will help you prepare for the times your business will be short of cash or know when you'll have extra to save, spend or invest.

Controlling your cash flow

To learn how to control cash flow in your business, start by monitoring your personal finances on a weekly basis for at least a month. If you're not accustomed to doing this, you might find the results quite shocking!

Creating a cash-flow worksheet

In spreadsheet software, like Excel, create a worksheet like this:

  1. In column 1, row 3, list all sources of income. Then leave three rows free and list all of your outgoings – rent or mortgage repayments, bills, council tax, travel costs, etc. Make sure you include all of your direct debits and standing orders, and don't forget to take into account savings, birthdays or other contingencies.

  2. In column 3, row 1, begin your timeline – one column per week (you can use the date of the first or last day of the week), for at least five weeks.

  3. Now, put all expected income and expenditure in each column. Total all columns, both income and expenditure for each week (you can use the Autosum function in Excel, use a simple formula, a calculator or mental arithmetic!).

  4. Here's the clever bit: Create a "cumulative cash flow" row beneath your expenditure totals. The first calculation will be Week 1 total income less Week 1 total expenditure. That's your cumulative cash flow for Week 1. For Week 2, your cumulative cash flow will be Week 2 total income less Week 2 total expenditure plus Week 1 cumulative cash flow. Continue in this way, each time adding the cumulative cash flow of the previous week.

This exercise will help you identify any weeks in which there might be a shortfall, or even a surplus that you can use to save, invest or spend on the latest must-have product.

Business cash-flow projections

Creating cash-flow projections for your business is no different, really. Swap weekly columns for monthly columns.

If there's a projected shortfall in any month, you might want to create a new sheet for that month and monitor the inflow and outflow of money on a weekly basis. Alternatively, you might want to consider rescheduling some of your payments, particularly if the shortfall is caused by seasonal fluctuations in your business.

There are other refinements you can add to your business projections. I like to calculate the "average customer spend", then add a little button that lets me see income figures based on a) average customer spend multiplied by b) a projected number of customers.

You can also add percentage buttons that will increase or decrease figures by 10%, 15% or 20% etc., to help you monitor how financial performance would be affected by fluctuations either way.


Relevant resources

Enterprise Nation has helped thousands of people start and grow their businesses. Led by founder, Emma Jones CBE, Enterprise Nation connects you to the resources and expertise to help you succeed.

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