Projected Cash Flow: What It Consists Of And Example

The projected cash flow is an estimate of the money that is expected to come in and out of the business. Includes all projected income and expenses. The cash flow projection generally covers a 12-month period. However, the estimates can cover a shorter period, such as a month or a week.

Cash flow can indicate how a business is doing; you can see how much money is going through the business. Like many of a company’s financial numbers, cash flow can be projected.

Cash flow can indicate how a business is doing; you can see how much money is going through the business. Like many of a company’s financial numbers, cash flow can be projected.

It would be interesting to be able to see what cash flow might look like in the future, which can be done with a projected cash flow. Even companies with healthy growth and strong sales run the risk of owing more than they can afford in any given month.

Fortunately, reviewing your cash flow projection each month can help you identify potential cash shortfalls in the months ahead.

What is the projected cash flow?

Projecting cash flow can provide a clearer idea of ​​where a business is going and how improvements can be made.

Cash flow projections can help predict cash surpluses or shortages in the business. You can see which periods have more income or more expenses. Projections can also be used to estimate the effects of a possible change in the business.

For example, hiring an employee in the next few months. Employee wages, taxes, and other expenses can be added to the projection. Thus, it can be seen how hiring the employee could affect cash flow.

Multiple cash flow projections can be made. You can make a projection for an optimistic scenario, a pessimistic one, and the most probable. This can help you see how a business is doing in multiple situations.

Uses of projected cash flow

If borrowing is required, a projected cash flow may be required to demonstrate ability to pay. Lenders can see how the business is and judge its liquidity based on estimates.

You can determine if the business is meeting expectations by reviewing its projections, comparing them to actual results. This can help determine where adjustments need to be made, such as cutting expenses.

However, the cash flow projection will never be perfect. It’s a refined guess. Despite the imperfections, these estimates can be useful tools and guides.


It is important because if a business runs out of cash and cannot obtain new finance, it will become insolvent. Cash flow is the life blood of all businesses.

As a result, it is essential that management project what will happen to cash flow to ensure that the company has sufficient funds to survive. Here are the key reasons why a projected cash flow is so important:

– Identify in advance the possible deficit in cash balances. Think of the projected cash flow as an early warning system. This is the most important reason for a projected cash flow.

– Ensure that the company can pay suppliers and employees. Suppliers who do not charge soon will stop supplying the business. It is even worse if employees are not paid on time.

– Detect problems with customer payments. Preparing the projection encourages the company to see how quickly clients are paying off their debts.

As an important discipline of financial planning, projected cash flow is an important management process, similar to preparing business budgets.

How to calculate the projected cash flow?

-It begins with the amount of cash that the company has at the beginning of the period. That is, all income minus all expenses from the previous period.

-It is calculated how much money will enter the business the next period. Incoming cash can include income, previous credit sales, and loans. Future sales are forecast by looking at revenue trends from prior periods.

Any new factors that may be different from previous periods must be taken into account. For example, adding a new product may lead to higher sales.

– All expenses to be paid for the next period are estimated. Both variable and fixed costs must be considered. Variable costs, like raw materials, fluctuate with sales. Fixed costs are not modified by sales, and include rent, utilities, and insurance.

– Estimated expenses are subtracted from estimated income. The resulting number is the projected cash flow of the business.

– Cash flow is added to the opening balance. This will give the closing balance. This number will also be the opening balance for the next period.


This is an example of a company’s projected cash flow, shortened to four months for clarity and simplicity:

The opening balance is the amount of money that will be available at the beginning of each month.

In the cash income, all the money that enters the company each month for collections from credit sales, direct sales, loans, etc. is placed.

Total cash income is the sum of all cash income amounts for each month.

The cash out lists all the expenses that the business may incur each month, such as payroll, accounts payable to suppliers, rental payments, and loans.

In the total cash outflows, all the expenses are added, in order to see exactly the money that will come out each month.

Cash flow is simply your total income for the month minus your total expenses for the month.

Final score

The closing operating cash balance is the amount that actually matters from the projected cash flow. If overall positive numbers are seen, some additional money may be available to invest in the business again.

If you see a negative number in any of the months, you have time to evaluate different options to prepare the business for such a vicissitude.


  1. Mike Kappel (2018). How to Create a Cash Flow Projection. Patriot Software. Taken from:
  2. Wells Fargo Works (2016). Creating a cash flow projection. Taken from:
  3. Tim Berry (2019). How to Forecast Cash Flow. Bplans. Taken from:
  4. Wikipedia, the free encyclopedia (2019). Cash flow forecasting. Taken from:
  5. KashFlow (2019). Cash Flow Forecast. Taken from:

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