I've done simple and complex cash flow projections, for real-time analysis and pro forma views based on bottom-up revenue, expense, capex, debt assumptions (monthly for 3,5,10,15,20 year projections). I've done this for SaaS, real estate, and a bunch of other industries.
Relevant Templates:
- 90-Day Cash Flow Planner (simple real-time)
- Pro Forma Financial Model Templates (all have a cash flow line, not real-time)
Whether something is simple or not depends on the business. The first template above is very easy to use and I would consider it simple for the average Excel user. It runs on a log of future invoices (receivables / payables) and shows expected future cash balance by day based on the current date, current bank balance, and the affect of all invoices therein.
Create Your Own - Pro Forma Cash Flow Projection
Creating a simple cash flow projection template in Excel involves a few key components to effectively track and project your cash flow. Here's a guide to set one up:
1. Time Frame
- Decide on the time frame for your projection (e.g., monthly, quarterly).
- Create columns for each period (e.g., each month of the year).
2. Income Section
- Label the first section as 'Income'.
- Create rows for different income sources (e.g., sales, services).
- Include a row at the end of this section for total income.
3. Expenses Section
- Label the next section as 'Expenses'.
- List all expected expenses (e.g., rent, utilities, salaries).
- Include subtotals for different categories if necessary.
- Add a row at the end for total expenses.
4. Net Cash Flow
- Create a section labeled 'Net Cash Flow'.
- Calculate Net Cash Flow for each period:
NetCashFlow=TotalIncome−TotalExpenses. If you have non-cash expenses like depreciation, you will need to add those back and reduce out the capital expenditure accordingly. The same goes for cost of goods sold and inventory purchases if your sales cycle is longer than a month and you are building a projection by month or if you plan to buy multiple months worth of inventory at a time.
5. Opening and Closing Balances
- Include rows for 'Opening Balance' and 'Closing Balance'.
- Opening Balance for the first period can be your current cash at hand.
- For subsequent periods, Opening Balance = Previous Period's Closing Balance.
- Closing Balance = Opening Balance + Net Cash Flow.
6. Formatting for Clarity
- Use bold for section headings.
- Use different colors or shading to distinguish between sections.
- Ensure the numbers are formatted correctly (e.g., currency). Or use non-currency numbers.
7. Formulas and Totals
- Use SUM formulas for totals in the Income and Expenses sections.
- Ensure the Net Cash Flow calculations are correctly formulated.
8. Projection Analysis
- Add a section at the end for notes or observations.
- You may include graphs or charts to visualize the cash flow over time.
9. Regular Updates
- Update the template regularly with actual figures to compare with projections.
- Adjust future projections based on these actuals.
10. Additional Features (Optional)
- Conditional formatting to highlight profits or deficits.
- Dropdown menus for repetitive items.
- Integration with other financial sheets or data sources.
By following these steps, you can create a functional and straightforward cash flow projection template in Excel. Remember to regularly review and update it for accuracy and insightful financial planning.
Why Are Cash Flow Projections Important?
Cash flow projections are an essential tool for businesses and individuals alike. They offer a range of practical benefits and insights. Here are some real-world examples illustrating why cash flow projections are so useful:
1. Avoiding Cash Shortages
- Example: A small retail business uses cash flow projections to anticipate periods when their cash on hand might run low, such as during off-peak seasons. This allows them to plan for short-term financing in advance, avoiding a crisis situation where they can't pay their suppliers or employees.
2. Strategic Planning and Investment
- Example: A tech startup uses cash flow projections to identify when they will have enough surplus cash to reinvest in research and development. This helps them time their product development cycles and market launches more effectively.
3. Managing Debt and Credit
- Example: A restaurant owner uses cash flow projections to schedule repayments for loans and manage credit lines efficiently, ensuring they don't incur penalties or harm their credit rating due to missed or late payments.
4. Identifying Profitable and Unprofitable Areas
- Example: A service-based company analyzes its cash flow projections to determine which services are generating the most cash and which are underperforming. This helps them make informed decisions about where to focus their resources.
5. Preparing for Seasonal Fluctuations
- Example: A landscaping business, which experiences high cash inflows during the spring and summer and lower inflows during the winter, uses cash flow projections to budget accordingly and maintain stability throughout the year.
6. Negotiating with Stakeholders
- Example: A manufacturing company utilizes cash flow projections in discussions with investors and lenders to demonstrate their financial stability and growth potential, aiding in securing favorable terms.
7. Emergency Preparedness
- Example: A small business owner uses cash flow projections to set aside funds for emergencies, such as unexpected equipment repairs or economic downturns, ensuring business continuity.
8. Optimizing Inventory Management
- Example: An e-commerce store uses cash flow projections to optimize inventory levels, purchasing enough stock to meet demand without tying up too much cash in unsold inventory.
9. Tax Planning
- Example: An independent contractor uses cash flow projections to estimate taxable income and plan for tax payments, avoiding surprises and penalties associated with underpayment.
10. Informing Expansion Decisions
- A fitness center uses cash flow projections to determine the ideal time to expand their facilities or open new locations, ensuring they have the necessary funds to support growth.
Article found in General Industry.