How do you project future cash flows for a new venture?

2 Identify your cash inflows and outflows

The next step is to list all the sources and uses of cash for your venture. Cash inflows are the money you receive from your customers, investors, grants, or other sources. Cash outflows are the money you spend on your expenses, such as salaries, rent, supplies, taxes, or debt repayments. You should also consider any non-cash items that affect your cash flow, such as depreciation, amortization, or changes in working capital.

3 Estimate your revenue and expenses

The third step is to estimate how much revenue and expenses you expect to generate and incur in each period of your forecast. This is where you need to make some assumptions and projections based on your market research, industry benchmarks, historical data, or best guesses. You should also account for any seasonality, growth rates, price changes, or other factors that might affect your cash flow. Be realistic and conservative in your estimates, and document your assumptions and sources.

4 Calculate your net cash flow

The fourth step is to calculate your net cash flow for each period by subtracting your total cash outflows from your total cash inflows. This will show you whether you have a positive or negative cash flow, and how much cash you have left over or need to cover your shortfall. You should also calculate your cumulative cash flow, which is the sum of your net cash flows from the start of your forecast to the end of each period. This will show you how much cash you have accumulated or depleted over time.

5 Analyze your cash flow forecast

The fifth step is to analyze your cash flow forecast and identify any potential issues or opportunities. For example, you might want to look at your cash flow break-even point, which is the period when your cumulative cash flow becomes positive. You might also want to look at your cash flow margin, which is the ratio of your net cash flow to your revenue. This will show you how efficiently you are converting your sales into cash. You should also compare your forecast with your actual results and update your assumptions and estimates accordingly.

6 Adjust your cash flow plan

The final step is to adjust your cash flow plan based on your analysis and feedback. You might need to revise your revenue or expense projections, or find ways to increase your cash inflows or reduce your cash outflows. You might also need to seek additional funding sources, such as loans, equity, or crowdfunding, or negotiate better terms with your suppliers or customers. You should also monitor your cash flow regularly and make sure you have enough cash reserves or contingency plans to deal with any unexpected events or emergencies.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?