Projected Cash Flow

If the profit projection is the heart
of your business plan, cash flow is the blood. Businesses fail
because they cannot pay their bills. Every part of your business plan
is important, but none of it means a thing if you run out of cash.

The point of this worksheet is to plan
how much you need before startup, for preliminary expenses, operating
expenses, and reserves. You should keep updating it and using it
afterward. It will enable you to foresee shortages in time to do
something about them—perhaps cut expenses, or perhaps negotiate a
loan. But foremost, you shouldn’t be taken by surprise.

There is no great trick to preparing
it: The cash-flow
projection is just a forward look at your checking
account.

For each item, determine when you
actually expect to receive cash (for sales) or when you will actually
have to write a check (for expense items).

You should track essential operating
data, which is not necessarily part of cash flow but allows you to
track items that have a heavy impact on cash flow, such as sales and
inventory purchases.

You should also track cash outlays
prior to opening in a pre-startup column. You should have already
researched those for your startup expenses plan.

Your cash flow will show you whether
your working capital is adequate. Clearly, if your projected cash
balance ever goes negative, you will need more start-up capital. This
plan will also predict just when and how much you will need to
borrow.

Explain your major assumptions,
especially those that make the cash flow differ from the Profit
and Loss Projection. For example, if you
make a sale in month one, when do you actually collect the cash? When
you buy inventory or materials, do you pay in advance, upon delivery,
or much later? How will this affect cash flow?

Are some expenses payable in advance?
When?

Are there irregular expenses, such as
quarterly tax payments, maintenance and repairs, or seasonal
inventory buildup, that should be budgeted?

Loan payments, equipment purchases, and
owner's draws usually do not show on profit and loss statements but
definitely do take cash out. Be sure to include them.

And of course, depreciation does not
appear in the cash flow at all because you never write a check for
it.