Five Steps On How to Create a Cash Flow Forecast

Creating Assumptions for the Cash Flow Projections


The income statement reports billings and accrued expenses. The cash flow statement reports collections and payments—cash inflow and outflow. The cash flow statement differs from the income statement in that it does not show non-cash items like depreciation expense, but does contain cash outlays like loan principal repayment that aren’t shown in the income statement.

The cash flow statement

The cash flow statement is a crucial benchmark for your business. Use it each month to determine whether your financial projections are accurate. You must monitor cash flow constantly to make sure your checking account always has a positive balance and that you’re bringing in more cash than you’re spending. If not, you need to revise your plans.

Think of your cash flow statement like a checkbook register.

In fact, the cash flow statement format most commonly used for small businesses mimics the format of a monthly checking account statement. It shows the opening balance, anticipated cash deposits, anticipated cash withdrawals, and the end balance for each month, which becomes the opening balance for the next month.

If you plan to seek financing, you should know the cash flow statement is the most important document in your loan package. Lenders will assess it carefully to see if your anticipated collections and payments seem accurate and realistic.

Next- Projections/forecasts  – Month by Month – Seasonal Adjustments