Cash flow projection

Update: check out our How to make a cash flow forecast guide for a full guide and free cash flow template spreadsheet

I promised I’d do a blog post about cash flow projection and here it is!

What’s cash flow, for starters?

It means the money - the actual pounds, shillings* and pence - going in and out of your bank account.

So if you’ve created an invoice, and your customer hasn’t paid you yet, that money hasn’t come into your bank account yet - so you can’t count that as cash that’s come in.

It’s cash that you expect to come in, but not cash that actually has come in.

It might not come in, for example if your customer goes out of business or asks for a refund.

Why do I need to keep an eye on my cash flow?

You’ve heard all the trite phrases - “cash is king” - “cash is the life blood of a business”. Does that really matter when your business is small?

Yes and yes again.

Because if you don’t have money coming into your business, you won’t be able to pay your bills.

If you don’t pay your business mobile bill, your account will be closed and you won’t have a mobile phone number any more. That means your customers will find it hard to get hold of you, and they may go elsewhere.

If you don’t pay your virtual assistant, (s)he will very soon get fed up and stop working for you.

So you’ll have to do all your admin yourself and that’ll leave you with less time to make sales.

And sooner or later, your business won’t be able to support you - and you won’t have a business any more.

You need to make sure you have at least enough cash coming in to pay your bills, pay any business loans, and - hopefully - sooner or later take some money out of it yourself.

OK, you’ve convinced me to keep an eye on cash going in and out. What’s all this projection malarkey?

“Cash flow projection” just means working out what cash you can expect to go in and out of your business in the next few weeks and months.

How do I know that? I’m not Mystic Meg.

Fair point. You can’t know it for certain. As Jeremy Hope wrote, “The only certainty about a forecast is that it will be wrong.”

All that you’re trying to do is to get as good an idea as you can. 

Why do I need to know?

It’s so that you can make plans for your business.

Can you afford to rent new premises on the High Street for your wholefood cafe?

You’ve heard that there’s a village in India where they make beautiful hand-made scarves, which you’d love to sell at the Christmas craft fair. Will you have enough money to fly out to India and visit the village to buy some? Or will you need to ask your neighbour’s daughter who’s on her gap year to go on your behalf?

You’re fed up of doing your own admin and would really like to use a virtual assistant service. When will you be able to afford to do this?

You won’t know this unless you sit down and plan how much cash you’re going to have coming in.

Remember, you need to know cash. It’s all very well invoicing your customers but until they’ve paid you, you don’t have the cash and so you can’t spend it.

Where do I start?

The best place is with income.

Try and work out how much money you expect your business to bring in over the next few weeks or months.

Personally I wouldn’t try and be too accurate for anything more than 6 months ahead, unless you know your business is seasonal and responds to trends, for example if you’re an ice-cream seller, you’re almost certain to make most of your money in summer unless you make elaborate frozen bombe desserts for Christmas.

How do I know what my business will bring in?

Look at how it’s done historically. This is one case where past performance might well be a guide to the future.

If you have customers who pay you regularly for a service, so for example you’re a web designer who also offers a hosting service, then it’s fairly easy to build up a pattern of how much money you earn each month. 

If, on the other hand, you don’t get a lot of repeat business, say you’re a wedding planner, it might be harder to get an accurate picture.

Remember to build in a time lag. If you invoice your customer at the end of August, and give them 30 days’ credit, that money goes into your projected cash in for September, not August.

Just do your best. Remember, you’re doing this to work out whether your business is going to bring in enough money to do what you want it to do, such as hire a virtual assistant or start stocking hand-made scarves from India.

What next?

Then plan the costs you know about. 

Factor in both monthly costs, like your mobile phone bill, and one-off costs, like a new run of stationery showing your new logo.

Don’t forget you must include taxes. Mr Osborne wants his share and that money’s got to come from somewhere.

This all sounds very complicated.

Don’t worry, help is at hand.

FreeAgent integrates with Float, a very nice little application which is currently in beta and which helps you plan your cash.

You simply link your Float account to your FreeAgent account, tell it to go and collect your bank information from FreeAgent at regular intervals and away you go.

Or, it’s often possible to create a simple cash flow projection on, excuse me for swearing, a spreadsheet.

Other resources

Ryan Carson produced a cash flow projection spreadsheet for SaaS start ups.

A lot of business books also have a layout for a simple cash flow projection. Try Emma Jones’s books or Liz Jackson’s book, Start Up!


* No, I’m not old enough to remember shillings. Really. It’s just an expression... oh forget it, I can see you don’t believe me.

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