At its simplest, the cash flow for a business is calculated by taking a defined accounting period, such as a month, adding that month’s cash received to the month’s starting cash, then subtracting the cash paid during the month. However, a business may need more than a month-to-month cash flow statement. A projected cash flow statement will help when decisions need to be made on potential future expenses such as increasing staff or moving to a larger facility.
Determine your beginning cash balance for the start of the period you want to project. For instance, if your projected cash flow statement will start on the first of the following month, your beginning cash balance is the ending cash balance for this month.
Calculate a projection for future cash sales for each period of your projected statement. For instance, if you are doing a month-to-month projected operating cash flow statement and your sales are steady over the year, average your monthly cash sales for the past year to give you a number for projected monthly cash sales. If you have seasonal sales, adjust your expected monthly sales appropriately. If your cash sales are growing each month, use the percentage growth rate to calculate the projected monthly cash sales.
Calculate a projection for future accounts receivable sales using the same method as for cash sales. Project the amount of cash you will be receiving each month as payment on accounts receivable by examining accounts receivable payment history. For instance, assume the business typically receives 60 percent of accounts receivable between 40 and 60 days and the balance between 60 and 90 days. If the first month of the project cash flow statement is April and you anticipate $5,000 of accounts receivable sales in that month, you would enter 60 percent of $5,000, or $3,000, in June’s cash flow statement and 40 percent in July’s statement.
Calculate total monthly projected cash receipts by adding projected cash sales, projected funds received on accounts receivable, interest on any loans, projected sales of any assets and any other monies the business expects to receive during the month.
Calculate total monthly projected expenses by adding rent, payroll, utilities, loan payments, insurance payments, cost of goods sold and any other projected monthly expenses. Projected cost of goods sold can be calculated as a percentage of projected sales. Log the cost of goods in the same month as the sale if the cost typically occurs at the same time as the sale. However, if the cost occurs two months before the sale due to, for example, production time, log the cost two months before the cash receipt is entered.
Calculate a period's projected operating cash flow by adding the period's cash receipts to the period's starting cash and subtracting the period's cash payments. Following period's projected cash flow is calculated using the ending available cash from each prior period.