How to Build a Projected Cash Flow Statement: A Step-by-Step Guide

In this guide, we'll walk through the essential components of a projected cash flow statement, providing practical examples to help you understand how to forecast your business's financial future effectively.
By Jamie

Overview of Projected Cash Flow Statements

A projected cash flow statement is a financial document that estimates the cash inflows and outflows for a specific period, typically over a year. This statement helps businesses understand their liquidity position and make informed financial decisions.

Components of a Projected Cash Flow Statement

A cash flow statement generally consists of three main sections:

  1. Operating Activities: Cash generated or used in the day-to-day operations of the business.
  2. Investing Activities: Cash used for acquiring or selling assets, such as property or equipment.
  3. Financing Activities: Cash from or used for funding activities, such as loans or equity financing.

Example Scenario: ABC Widgets

Let’s consider a hypothetical company, ABC Widgets, which manufactures and sells widgets. Here’s how to build a projected cash flow statement for the upcoming year.

Step 1: Estimate Cash Inflows

Sales Revenue: ABC Widgets anticipates selling 10,000 widgets at $50 each.

  • Total Sales Revenue: 10,000 widgets * \(50 = \)500,000

Other Income: The company expects to earn interest income of $5,000 from its savings account.

  • Total Cash Inflows: \(500,000 (Sales) + \)5,000 (Interest) = $505,000

Step 2: Estimate Cash Outflows

Operating Expenses: ABC Widgets estimates the following monthly expenses:

  • Rent: $2,000
  • Salaries: $8,000
  • Utilities: $1,000
  • Materials: $15,000

Total Monthly Operating Expenses: \(2,000 + \)8,000 + \(1,000 + \)15,000 = $26,000

  • Annual Operating Expenses: \(26,000 * 12 = \)312,000

Investing Activities: ABC Widgets plans to purchase new machinery for $100,000.

Financing Activities: The company expects to take out a loan of $50,000 to fund its operations.

Step 3: Compile the Cash Flow Statement

With the inflows and outflows estimated, we can compile the projected cash flow statement:

Cash Flow Statement for ABC Widgets Amount
Cash Inflows
Sales Revenue $500,000
Interest Income $5,000
Total Cash Inflows $505,000
Cash Outflows
Operating Expenses $312,000
Purchase of Machinery $100,000
Loan Repayment $50,000
Total Cash Outflows $462,000
Net Cash Flow $43,000

Conclusion

Building a projected cash flow statement is essential for any business looking to manage its finances effectively. By estimating both cash inflows and outflows, companies like ABC Widgets can gain invaluable insights into their liquidity and make informed decisions for future growth.