Building Cash Flow Projections for Small Businesses

A calculator, money, and a journal on a table.

Whether you are just starting up or you’re already running a small business, it is important to have consistent and accurate financial systems. These include tracking your income and expenditures, keeping your books up to date, and building cash flow projections for your small business. Cash flow projections may seem daunting, but you can use a strategy to create early projections for your business.

In this guide to putting your hard-earned cash to the best use, we’ll cover:

What is a cash flow projection for a small business?
How to build cash flow projections
Do you need cash flow projections to run a business?
Are cash flow projections part of a business plan?
Who can help build cash flow projections?

There’s no time like today to further your business education and build for a brighter tomorrow.

What is a Cash Flow Projection for a Small Business?

A cash flow projection measures your inflow and outflow of capital over a given period. A typical timeframe would be one year, and you would try to use your existing knowledge of your business setup to project all the money you would spend and make over those twelve months.

It is important to use cash flow projections that you and your team understand and utilize. While yearly might work for some businesses, there are many reasons that a different small business would use monthly, semi-annual, or custom time frames – such as contracts or large purchases that could drastically change the needs of that time period.

How to Build Cash Flow Projections

Cash flow forecasts don’t have to be confusing or time consuming. In fact, if you are just starting to make cash flow projections for your small business, we recommend using a simple 4-step process.

4-Step Cash Flow Projections:

Decide on the time span.
Estimate all income over that time.
Estimate all spending over that time.
The difference is your working cash flow for that time.

This example will need to be expanded upon depending on many variables of your small business growth process, including adding revenue streams, scaling, or adjusting for expected market dynamics.

Do You Need Cash Flow Projections to Run a Business?

While there are plenty of businesses that may not use consistent (or any) projections, they are most likely leaving money on the table by not having a clear financial picture. To grow and protect your business, we highly recommend using cash flow projections.

When you use cash flow projections, you’ll have a better idea of:

The need for additional working capital
Your ability to extend more generous terms to your customers (to improve sales volume)
Your ability to pay off trade accounts at a discount (if offered)
Your ability to cover requested loan payments.
Your ability to distribute cash on hand to form’s owners.

In addition, projections are commonly used to help small businesses secure loans, other private funding, or be sold for profit.

Are Cash Flow Projections Part of a Business Plan?

Cash flow projections are highly recommended when writing a business plan. Even if you do not have historical data about the small business you are opening, you can do market research and use estimates to create month-over-month projections for at least the first year of your new venture.

We mentioned using projections as a tool to convince lenders and/or potential business partners to work with you, and this is especially pertinent in the startup phase of a business. Any bank or lending institution will be happy to see well thought out projections as part of a business plan, and thus more likely to take on the risk of providing the firm with working capital.

Who Can Help Build Cash Flow Projections?

If you are starting a small business and do not have extensive financial experience, it doesn’t mean you have to settle for sub-par projections. There are often resources like small business hubs, your local chamber of commerce, or even your local bank.

Another good option is to hire a consultant or a part-time bookkeeper if you don’t have a full-fledged financial department. They can teach you a system to keep your finances in line, create projections, and use them to help your business grow for long-term success.

Community West Bank Helps Small Businesses

At Community West Bank, we enjoy learning about our clients’ businesses, as well as providing local perspective, unique lending opportunities, and a friendly environment.

If you are starting a business or are looking to make a switch to a local community bank, please don’t hesitate to reach out today. We’re here to help.