Cash flow projection is a fundamental financial practice for businesses, enabling them to forecast future cash inflows and outflows to ensure liquidity and make informed spending decisions. According to financial experts, a cash flow projection is essentially a spreadsheet used to predict the amount of money a business will have in its accounts at a future point in time. This is calculated by inputting expected money to be received, such as income, loans, and outside investments, and money to be spent, including equipment spending and payments to yourself, over a specific period. The primary purpose of this exercise is to look into the future, helping businesses predict how much money will be available next week, next month, or even next year. By doing so, businesses can better manage their finances, anticipate potential shortfalls, and plan for future needs.
The process of creating a cash flow projection involves several key steps. It begins with establishing the starting cash balance. Following this, businesses must estimate incoming cash from various sources, such as sales, investments, or other income. Next, all expected expenses, which can be both fixed and variable, must be listed. The final projected cash balance is determined by subtracting the total outflows from the inflows. To maintain accuracy, it is crucial to update these projections regularly. Fluctuations in business are normal, and cash flow projections are the tool that ensures there is enough funding to cover expenses, even when revenue dips or expenses increase.
Understanding Cash Flow Projections
A cash flow projection is an estimate of a business's future cash inflows and outflows over a specific period, such as a month, quarter, or year. This financial tool helps businesses predict cash shortages, plan expenses, and ensure they have the necessary liquidity to cover operating costs. The level of detail in a projection can vary. For instance, a one-year cash flow projection is often used for annual budget preparation, tracking progress against goals, and identifying short-term cash flow gaps. For more immediate and accurate forecasting, projections can be broken down monthly or even weekly, allowing for a better grasp on near-term factors.
There is a notable difference in how cash flow projections are approached for new versus established businesses. Startups, unlike established companies, must rely on industry benchmarks and early operational insights to refine their expectations, primarily because they lack historical financial data. As one expert notes, the biggest difference is that a new business does not have any information to base its projections on initially.
Types of Cash Flow Projection Templates
Various free templates are available to assist businesses with their cash flow planning. These templates are often designed for specific types of organisations or business models, offering tailored features to meet unique financial management needs.
Templates for Non-Profit Organisations
Non-profit organisations have distinct financial requirements, often managing tight cash flow, complex funding streams, and time-bound grants while remaining focused on their mission. To address this, there are Excel-based Cash Flow Projection Templates purpose-built for nonprofits to help them plan and remain sustainable. These templates provide a clear monthly view of income, expenses, and available cash, with the ability to segment data by funding source and restriction type. This is particularly useful when awaiting grant disbursement or mapping spending to a specific programme timeline. Key features of such templates include the ability to track income and expenses by funding source, including restricted and unrestricted grants, and to forecast cash availability based on donor cycles or grant disbursement schedules. This helps align spending with programme milestones and compliance requirements.
Templates for Freelancers and Solo Operators
Freelancers and solo operators often require a straightforward tool to track incoming invoices and recurring expenses. A Cash Flow Forecast Template designed for this audience offers a practical, monthly layout that makes it easy to map out invoices, retainer payments, and recurring expenses in one view. These templates typically feature editable fields and built-in calculations, making short-term cash planning more predictable, even for those without a dedicated finance team. The benefits of such a template include using monthly columns to spot income gaps and timing issues, customising rows to reflect freelance-specific inflows and costs, and maintaining a lean approach with a single-sheet format and auto-calculations.
General Business Templates
There are also general-purpose cash flow projection templates suitable for a wide range of small businesses and financial planners. These templates are designed to provide a clear view of expected cash inflows and outflows, helping users anticipate potential shortfalls and plan for future needs. They are typically available in both Google Sheets and Excel and feature a user-friendly layout for inputting revenue streams, expenses, and other financial details. A key advantage is their customisable sections, which allow the template to be tailored to match a business’s unique cash flow patterns. Whether a business is planning for growth or ensuring sufficient liquidity for day-to-day operations, these templates provide the insight needed to make confident financial decisions.
How to Use a Cash Flow Projection Template Effectively
To maximise the benefit of a cash flow projection template, businesses should adopt a structured approach. The process involves choosing an appropriate timeframe, which could be monthly, quarterly, or annually. Once the timeframe is set, the template should be populated with all expected inflows and outflows. It is important to be as comprehensive as possible, accounting for all sources of income and all categories of expenditure.
After populating the template, the net cash flow for each period can be calculated. This allows businesses to spot potential shortfalls before they occur. For example, if a projection shows a cash shortage in several months' time, the business has a window of opportunity to plan ahead. This could involve finding ways to reduce expenses, creating an additional revenue stream, or securing a loan to bridge the gap.
A key practice for maintaining relevant and accurate projections is to implement a rolling forecast. This involves regularly updating the projections by adding a new period as each one passes. For instance, if a 12-month cash flow forecast is created in January, it should be updated in February to extend through the following January. Revising the projection regularly allows a business to continuously refine its forecasts based on actual performance, market trends, and any unexpected changes in revenue or expenses.
Accessing Free Cash Flow Projection Resources
Several organisations and platforms offer free resources to help businesses with cash flow management. For instance, Xero provides a free cash flow projection template as an editable PDF. To obtain this template, users are required to fill in a form. Along with the template, Xero also provides a guide on how to use it. The template is designed to help businesses enter upcoming costs and income on a timeline to see when they might have surplus cash.
Similarly, Smartsheet offers a free starter kit that includes a cash flow projection template for Excel, a cash flow statement template, an accounts payable template, an accounts receivable template, and a basic sales forecasting template. This comprehensive kit provides businesses with everything they need to start their cash flow projection process.
Other platforms, such as ClickUp, promote their own tools and templates, highlighting that cash flow is a necessity for business success. They offer an all-in-one visibility platform that includes budgets, expenses, automated workflows, and approvals, with a Free Forever Plan available for small businesses and solopreneurs. Conta also offers a Cash Flow Forecast Template specifically for freelancers and solo operators, providing a no-frills tool for tracking invoices and expenses.
Conclusion
Cash flow projection is an essential practice for any business aiming to maintain financial stability and plan for the future. By using free templates, businesses of all sizes and types—from non-profits to freelancers and general small businesses—can gain clarity and control over their finances. The key to success lies in selecting the right template for the specific business context, populating it with accurate estimates, and regularly updating it as a rolling forecast. This proactive approach allows businesses to anticipate challenges, seize opportunities, and make confident financial decisions.