For example, let’s say you’ve been in business for over a year, so you have a full 12 months’ worth of data on your utility bills. Use this to inform your estimate of what that expense will look like next month. So, if our cash flow for the month is $11,000, and we had an opening balance of $4,000, then our closing balance will be $15,000.

• Bank loans, deposits, investments, grants, tax refunds, royalties, and franchise fees all count as cash inflow for your cash flow projection.
• Long-term cash flow forecasting typically covers periods exceeding one year.
• We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
• We recommend using a combination of the three to enable optimal analyses.
• All right, let’s take a moment or two to review the important information we learned.

These include the time period that the statement will cover, the revenue and expense items that will be included, and the assumptions that are made about future cash inflows and outflows. As the months pass and you compare your monthly cash flow statements to your projections for each month, the numbers should match up. A 5% variance one way or the other can be okay, but if it starts being more than 5%, you should revisit your key assumptions to check for flaws in your logic. Even if your actual numbers come in higher than your projections, you should take a close look at your assumptions, because higher returns in the short term could lead to shortfalls later on. Once you’ve included all revenue and expenses, you can begin to calculate your cash flow projection on the bottom row by subtracting the outgoing cash from the incoming cash and entering the totals. You can then figure out whether you have a positive or negative cash flow.

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On some level, you may know that sales are down, but looking at that number on a spreadsheet makes it much more real. Many small businesses can be caught off guard by an unexpected cash shortage. While you may not be able to prevent the shortage, knowing that it’s coming can help you manage it better. But there’s an optimal time to spend money and a time when you should keep your expenses to a minimum. You can also consult your cash flow projection to determine the best time to invest in new equipment, hire new staff, revise your pricing and payment terms, or when to offer promotions and discounts.

Report on key metrics and get real-time visibility into work as it happens with roll-up reports, dashboards, and automated workflows built to keep your team connected and informed. Profitable companies can run out of cash if they don’t know their numbers and manage their cash as well as their profits. Sign https://www.bookstime.com/articles/cash-flow-projection up for Shopify’s free trial to access all of the tools and services you need to start, run, and grow your business. In the meantime, start building your store with a free 3-day trial of Shopify. Try Shopify for free, and explore all the tools and services you need to start, run, and grow your business.

Calculate Your Payables

The next step is to organize the consolidated data in a logical manner. There are many different cash flow forecasting templates out there that you can use. Here are some examples of cash flow forecasting templates that we like to use. One of the core objectives of cash forecasting is making sure there is enough cash in the future to be able to pay short-term obligations to creditors and suppliers. Over time your forecasts will become more accurate, providing you with various routes to growth that have been tested through your cash flow forecast. This is the starting balance in the business bank account at the start of the period.