1. Introduction
Every business needs to manage its money wisely to survive and grow. One of the most effective tools is a cashflow projection. If you’ve ever wondered how to create cashflow projection, this guide will walk you through the steps, benefits, and best practices to ensure your business remains financially healthy.
2. What Is a Cashflow Projection?
A cashflow projection is a forecast that shows how much money will flow into and out of your business over a specific period. It helps you predict whether you will have enough cash to cover expenses and identify potential shortfalls before they happen.
3. Why Create Cashflow Projection?
- Helps you anticipate cash shortages or surpluses.
- Assists in securing business loans or investor funding.
- Ensures you can pay suppliers, staff, and bills on time.
- Improves decision-making on investments and expansion.
- Builds financial discipline and long-term stability.
4. Key Components of a Cashflow Projection
- Opening Balance: Cash available at the beginning of the period.
- Cash Inflows: Money coming in (sales, loans, investments).
- Cash Outflows: Money going out (rent, salaries, bills, raw materials).
- Closing Balance: Cash left at the end of the period (Opening Balance + Inflows – Outflows).
5. Steps to Create Cashflow Projection
- Step 1: Choose your time frame (weekly, monthly, quarterly).
- Step 2: Estimate expected cash inflows (sales, funding, receivables).
- Step 3: List all expected cash outflows (fixed and variable expenses).
- Step 4: Add your opening balance.
- Step 5: Calculate closing balance by subtracting outflows from total inflows.
- Step 6: Review and adjust regularly based on actual performance.
6. Example of a Simple Cashflow Projection
- Opening Balance: £5,000
- Inflows (Sales, Loan): £10,000
- Outflows (Rent, Salaries, Expenses): £8,000
- Closing Balance: £7,000
This means the business will end the period with £7,000 cash available.
7. Common Mistakes to Avoid
- Overestimating sales and underestimating expenses.
- Forgetting seasonal fluctuations.
- Not updating the projection regularly.
- Ignoring small but recurring expenses.
8. Tips for Accurate Cashflow Projection
- Use realistic sales forecasts based on past performance.
- Include one-time expenses like equipment purchases.
- Regularly compare actual figures with projected ones.
- Use accounting software or templates to simplify the process.
Frequently Asked Questions
1. How often should I create cashflow projection?
Monthly projections are most common, but weekly projections are useful for businesses with tight cash positions.
2. Can startups create cashflow projections without historical data?
Yes, use industry benchmarks and realistic assumptions to estimate inflows and outflows.
3. Do banks require cashflow projections for loans?
Yes, most lenders ask for a cashflow forecast to assess repayment ability.
4. What’s the difference between cashflow projection and profit forecast?
Cashflow focuses on actual money movement, while profit forecast looks at overall income and expenses (including non-cash items).
5. Can I use Excel to create cashflow projection?
Yes, Excel is one of the easiest tools for building customizable cashflow projections.
6. Should I include VAT or tax in my projection?
Yes, always account for tax payments to avoid shortfalls.
Conclusion
Knowing how to create cashflow projection is essential for any entrepreneur or small business owner. It allows you to anticipate challenges, make smarter financial decisions, and build a stronger, more resilient business. By forecasting your inflows and outflows accurately, you gain control over your company’s financial future.