Formulas You Need To Calculate Cash Flow Projection

What you need to know for cash flow projection

Cash flow projection is a forecast of cash that is estimated to be generated or expended over a specific period of time in the future. It shouldn’t be confused with the cash flow statement which shows cash that has come into or gone out of a business in the past. By having a projected cash flow for your business you can anticipate when you may experience a shortage or have a surplus of cash and plan accordingly. To predict cash flow you will need to know the following:

Starting cash position
Estimated monthly expenses
Estimated monthly income

Normally a cash flow projection will be for at least a 12 month period.

Calculating the cash flow projection

If you don’t know how to calculate cash flow, here is what you need to know. There are three parts to a cash flow projection:

Cash Revenues – Estimated sales figures for each month. Only the sales that are collectible in cash during the specific month you are dealing with should be entered.
Cash Disbursements – Estimated monthly cash expenditures should be entered here. That may include product suppliers, rent/mortgage, salaries, utilities and any other expenses you may expect for that particular month.
Reconciliation of Cash Flow – Starts with an opening balance which is the carryover from the previous month’s operations. The current month’s revenues are added to this balance and the current month’s disbursements are subtracted.

To calculate the monthly cash flow add total cash revenues to the opening cash balance and subtract the total cash disbursements to get a closing balance that will be carried forward as the next months opening balance:

Opening Balance

+ Total Cash Revenues

– Total Cash Disbursements

Closing Cash Balance

Do this for each of the following months for the next 12 months to get your projected cash flow for the year. It is a good idea to estimate sales a little lower and expenses a little higher to avoid getting caught short. If you are having difficulty calculating cash flow projections the company analysis service we offer can help.

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