One of the most important financial reports you need to know how to read as a business owner is your cash flow projection. It’s the secret to making sure your business is financially healthy and you’ll be able to keep things moving and growing in your business.

You’re not alone if you have no idea what a cash flow is or how to build a cash flow projection for your business! Most small business owners have never seen a cash flow projection for their business, much less what to do with it. 

I teach entrepreneurs the basics of small business finance in my self-guided course, Not Rocket Finance, and cash flow is one of the most important parts of the basics for business success. 

Cash flow projections help you stay on top of what money you have coming in and out of your business so you can take advantage of market opportunities, make sure you’re paying your bills on time, and use different financial strategies for growth. They’re the essential report you need to fix cash flow problems or improve your cash flow in your business.

Let’s get started getting a handle on your business finances with a cash flow projection!

What Is Cash Flow Projection?

A cash flow projection is a report of the money you expect to flow in and out of your business in a given time period. It’s not the same as profit statements that tell you how much you’re making but instead is a report that tells you if you’re going to run into trouble because your business finances dip below $0.

Building out a cash flow forecast report is easy if you have accounting software set up, like my favorite accounting app Xero. 

The great benefit of projecting cash flow is that you are able to prepare for unexpected expenses or things that may arise and work it into your projection, as well as make sure you’re going to have the right cash on hand for expenses.

For example, if you take on a new project that you’ll be paid for after doing the work, before you take on that new client a cash flow projection can tell you if you’ll have enough cash on hand to cover expenses to get the work done before you’re paid. 

On the other hand, if you have a client that consistently pays late, you’ll be able to better spot the problem, take care of it, and also have a back-up plan to make sure bills get paid until that invoice gets paid.

A cash flow projection is a safety net to help you prepare for best case and worst case scenarios in your business. From there, you can use cash flow management strategies to make business expenses more efficient or pay back loans over a period of time. Best of all, you’ll know if the business will have enough cash flow to keep operating in the future. 

Cash flow projections can be complicated or simple, depending on your business model and needs. I usually advise using a simple cash flow projection for your business instead of setting up a super detailed report. Simple and easy financial projections are easier to understand than super complex ones!

How to Create a Cash Flow Projection

When it comes to actually building a cash flow projection, there are two ways you can approach this. You can rely on software to create a cash flow projection for you or make a manual projection with spreadsheets.

If you’re anything like me, paying a couple bucks a month to get access to robust accounting and invoicing tools and handy reports like a simple cash flow projection is the best kind of expense! Who wants to waste time filling in spreadsheets?

I love using Float with my clients and help you set it up in my self-guided course, Not Rocket Finance. It uses a method of creating a cash flow projection that’s a lot more accurate than other methods as well as is super easy to use because it’s all automated and syncs with Xero and Quickbooks. 

The best part is Float can run different scenarios to give you an idea of what will happen to your finances if you take on a new project or a client doesn’t pay or help you spot trouble times when your finances may dip below $0 because of timing.

Cash flow projections can help you anticipate problems well before they happen so that way you don’t actually run into trouble in your business. They’re also a great way for you to anticipate additional needs, like when you may need extra help or need to make upgrades in your systems because of increased income beyond your projections. 

Get Started Building Financial Reports

If you are a small business owner interested in creating a cash flow projection, there’s also a bunch of other reports that can really help you get your business in tip top financial shape. I cover all of the essential financial reports in my course if you’re interested in getting a handle on your business finances.

The first step you can take if you’re not ready yet is to get a small business financial health check so that way you know what you need to improve and where your business stands. Sign up for my free download to help you get started towards a more solid financial future for your business without all of the accountant talk!