Cash Flow Basics for Small Business Explained

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Noah Parsons

13 min. read

Updated January 4, 2024

Cash is the lifeblood of every business, and running out of it is the number one reason that small businesses fail. Even if you are making plenty of sales, if you don’t have enough cash in the bank your business won’t be able to pay its bills and stay open.

That’s why it’s so important for businesses to understand the basics of cash flow and cash flow forecasting. We’ll be covering those elements and more throughout this guide.

  • What is cash flow?

Cash flow measures how much money moves into and out of your business during a specific period.

Businesses bring in money through sales, returns on investments, and loans and investments—that’s cash flowing into the business.

And businesses spend money on supplies and services, utilities, taxes, loan payments, and other bills—that’s cash flowing out.

Cash flow is measured by comparing how much money flows into a business during a certain period to how much money flows out of that business during that period. 

You usually measure cash flow over a month or a quarter.

  • How to calculate cash flow

The simplest formula for calculating cash flow is:

CASH RECEIVED – CASH SPENT = NET CASH FLOW

If your net cash flow number is positive, your business is cash flow positive, and accumulating cash in the bank.

If your net cash flow number is negative, your business is cash flow negative, and you are finishing the month with less cash than you started with.

What’s the difference between Cash and Profit?

Believe it or not, it’s possible for your business to be profitable but still run out of cash. That may not be intuitive initially, but it’s because cash and profits are very different. Here’s why.

Profits can include sales you’ve made but haven’t been paid for yet.

Cash, on the other hand, is the amount of money you actually have in your bank account. It represents your business’s liquidity; it’s not cash if you can’t use it right now to pay your bills.

For example, if you’re making a lot of sales but you invoice your customers, and they pay you “net 30,” or within 30 days of receiving the invoice, you could have lots of revenue on paper but not a lot of cash in your bank account because your customers haven’t paid you yet. Those sales will only show up on your income statement .

If the money your customers owe you hasn’t entered your bank account, it won’t appear on your cash flow statement yet. It isn’t available to your business at this point. It’s still in your customers’ hands, even though you’ve invoiced them. You keep track of the money your customers owe you in accounts receivable .

Meanwhile, you can only pay your bills with real cash in your bank account. It will be tough to fulfill orders, meet payroll, and pay rent without that cash. That’s why keeping track of cash flow is so important. 

To keep your business afloat, you need to have a good sense of what comes in and what goes out of your business every month and do everything you can to remain cash flow positive.

Dig deeper:

The difference between cash and profits

Learn more about the specific differences between cash and profits and how they impact your business.

The difference between cash flow and working capital

Cash flow and working capital tell different financial stories about your business. Cash flow deals with money moving in and out of your business while working capital compares assets and liabilities.

What’s your biggest business challenge right now?

  • How to analyze a cash flow statement

When analyzing your historical cash flow statement, you’re looking at the amount of real cash you have on hand at the beginning of the month, compared to your cash at the end of the month. 

You can also look at your cash flow over different time frames – quarterly, for example – but a good rule of thumb is to regularly look at your cash flow to better understand any changes in the health of your business.

To see a visual example of how this works within a business, you can download this free cash flow example as a PDF or Excel sheet .

When conducting a cash flow analysis, you’ll want to be sure you understand the following key terms. 

Positive cash flow

Positive cash flow is defined as ending up with more liquid money on hand at the end of a given period of time compared to what was available when that period began.

Let’s say you started with $1000 in cash at the beginning of the month. You paid $500 in bills and expenses, and your customers paid you $2,000 for your services. Good news: Your cash flow is positive, at $1,500 for the month, leaving you with $2500 in cash.

If you have positive trending cash flow, it’s easier to:

  • Pay your bills: Positive cash flow ensures employees get checks during each payroll cycle. It also gives decision makers the funds they need to pay suppliers, creditors, and the government.
  • Invest in new opportunities: Today’s business world moves quickly. When cash is readily available, business owners can invest in opportunities that may arise at any given point in time.
  • Stomach the unpredictable: Having access to cash means that whenever equipment breaks, clients don’t pay their invoices on time, or when new government regulations come into effect, businesses can survive.

Negative cash flow

Negative cash flow is when more cash is leaving the business than is coming in. When cash flow is negative, the amount of cash in your bank account is shrinking. This might not be a problem if your business has plenty of cash in the bank. But, it does mean that your business will eventually run out of money if it doesn’t become cash flow positive at some point.

Let’s say you started with $2,000 in the bank at the beginning of the month. You paid $1,500 in bills and expenses, and even though you did plenty of work and invoiced your customers for $3,000 worth of services, your customers only actually paid you $200. You’re still waiting for the rest of your payments to come in. Your cash flow is negative: -$1,300 for the month, leaving you with only $700 in cash.

If you don’t have any reserves, your rent check might bounce. If you have an established line of credit, you might rely on that to pay part of your bills. Maybe you forecasted your cash flow and knew that you were going to be short that month, so you made a plan to cover your expenses.

One month of negative cash flow won’t necessarily tank your business. But your business is at risk when you start to see a trend, and you don’t do nothing to reverse it (or when you’re unpleasantly surprised because you haven’t been tracking your cash flow). 

Cash Burn Rate and Runway

New businesses and startups often have negative cash flow when starting. They have lots of bills to pay while they’re getting up and running, and there aren’t a lot of sales yet. As revenue from sales starts to come in, hopefully, cash will flow into the business instead of just flowing out. 

This is why new businesses often need investment and loans to get started—they need cash in the bank to cover all of the negative cash flow during the business’s early days.

When starting out, it’s important to track Cash Burn Rate, which is essentially your negative cash flow number – the amount of money you are “burning” each month. You can then use that number to determine how many months of cash you have left – this is your “runway.” 

Read our detailed explanation of cash burn rate and cash runway to learn more about how to find, measure, and adjust these metrics.

Negative cash flow can also happen when a business chooses to invest in a new opportunity. The business could be betting that investing in a new opportunity now will pay off in the future. That investment could cause negative cash flow for some time, so it’s important to keep a close eye on cash and have a solid cash flow forecast in place so you know if your business is on track to stay in the black.

How positive and negative cash flow impact your business

Learn more about your relationship with positive and negative cash flow and how understanding these concepts will help you better understand your business health.

The importance of your burn rate and cash runway

Learn to calculate how much cash you’re using up and how long you have until it’s depleted.

15 tips for dealing with clients who won’t pay

A major factor that impacts your positive cash flow is clients paying on time. If delays in payment are leading to a cash flow crunch, there are a few things worth trying.

  • Why cash flow forecasting is important

You’ll want to monitor your historical cash flow at least once a month so you can start spotting trends with what’s actually happening with your cash inflow and outflow.

But it’s not just measuring the past and present, forecasting your cash flow can also help you anticipate when your business might run low on cash in the future. You can then plan ahead and open a line of credit or find other loans and investments to help you cover that point in the future when you’re going to need a little extra cash.

It’s a lot easier to get help from a bank or investor before you’re actually in a crisis where you’re not sure you can cover your bills. If you wait until you’re really in trouble to take action, lenders may see you as too much of a risk and turn down your request.

Your cash flow forecast can also help you plan the best time to make a big purchase, like a new piece of equipment or a company vehicle.

Don’t forget to account for the unknown, though. Business owners can’t predict the future—particularly when it comes to any unforeseen expenses they might incur (e.g., a truck breaking down prematurely and needing replacement, or a data breach resulting in a forced increase in IT spend). And they also can’t know for certain that their clients will pay their bills on time.

So, when you’re forecasting or looking at your cash flow statement for last month, remember that having some buffer is a good thing. You don’t want to be in a position where you’ve allocated every single penny, to the point where you can’t accommodate unexpected expenses.

Part of reviewing your cash flow should be thinking about risk, and the effect an unexpected expense will have on your available cash—and ultimately, your ability to pay your bills.

How to forecast your cash flow and build a cash flow statement

A cash flow projection is all about predicting your money needs in advance. 

Unfortunately, though, forecasting your cash flow is a bit more complicated than forecasting other aspects of your business such as your sales and expenses. Your cash flow statement takes inputs from your revenue projections, your expense projections, and also your inventory purchase plans if your business keeps inventory on hand.

In addition to that, you need to predict when your customers will pay you – will all of them pay on time? Or will some take longer to pay?

A tool like LivePlan can greatly simplify cash flow forecasting, but you can also do it yourself with spreadsheets.

There are two methods you can use to build a cash flow statement : the direct method and the indirect method. While they will both arrive at the same end-result and predict how much cash you will have in the bank in the future, they accomplish that goal in different ways.

The direct method of forecasting cash flow

The direct method provides a very clear view of how cash moves in and out of a business. You essentially add up all the cash your business has received from various sources and then subtract all the cash that is paid out to suppliers, vendors, employees, etc. 

This number will be the amount of cash you’ve added or subtracted from your bank account during the month.

The indirect method of forecasting cash flow

The indirect method starts with your net income from your Profit and Loss Statement and then makes adjustments to that number to account for non-cash expenses such as depreciation. 

From there you make adjustments to account for changes in inventory, accounts receivable , and accounts payable .

The indirect method is very common for building historical cash flow statements because the required numbers are all easily generated from your accounting system. This makes it a fairly popular method for forecasting cash flow. 

However, the direct method is generally easier for people who aren’t as familiar with the intricacies of accounting.

Read our guide for a more detailed explanation of the two methods of creating a cash flow statement .

Forecasting cash flow

If you’re forecasting cash flow using spreadsheets, I recommend using the direct method. It’s easier and more straightforward.

Essentially, you want to create future estimates of when you’ll receive money from customers and when you’ll pay your bills. 

It’s not critical to forecast every invoice and bill payment, though. Forecasting is about helping you make strategic decisions about your business, so making broader estimates in your forecast is OK.

How to manage cash flow with an accurate forecast

Learn how to leverage your cash flow forecast to actively manage your business and improve your chances for growth.

  • How to improve your cash flow

If your cash flow is negative or you’re just looking for ways to improve your cash flow in general, there are plenty of options available. Here’s a quick list of things you can do:

  • Convince your customers to pay you faster
  • Pay your own bills a bit slower
  • Purchase less inventory and keep less inventory on hand
  • Follow up on bad debts
  • Establish a line of credit or other type of business loan

Depending on your situation, you may use these methods or even consider more drastic measures if the broader economy is impacting your ability to create positive cash flow.

Tips to improve your cash flow

Are you struggling to maintain healthy cash flow? Check out these ten tips to improve the health of your business.

How to prevent cash flow problems

The best way to improve your cash flow is by preventing problems before they ever start. Here are four ways to do it.

How to manage cash flow in a crisis

Here are five tips to help strengthen your cash position and keep your business healthy even when dealing with terrible circumstances.

How to balance cash flow in a seasonal business

Seasonal businesses have unique challenges you’ll want to consider, including variations on cash flow management. Check out these techniques to effectively balance your cash flow and avoid seasonal surprises.

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Content Author: Noah Parsons

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

what is cash flow in business plan

Table of Contents

  • Cash vs profit
  • How to forecast cash flow

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Cash flow is a measure of the money moving in and out of a business. Cash flow represents revenue received — or inflows — and expenses spent, or outflows. The total net balance over a specific accounting period is reported on a cash flow statement, which shows the sources and uses of cash.

Cash flow can help indicate the health of a business: Positive flow (more money moving in than out) can indicate solvency, while a negative value (more money moving out than in) can show that business expenses are higher than profits.

However, cash flow isn’t the ultimate measure of business performance. It’s a helpful tool, but it’s important to consider the cash flow statement alongside your income statement and balance sheet to ensure your business is thriving.

» MORE: NerdWallet's picks for best accounting software

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What is cash flow used for?

For larger companies, cash flow helps to determine the company’s value for shareholders. The most important factor is their ability to generate long-term free cash flow, or FCF, which considers money spent on capital expenditures.

For smaller businesses, positive cash flow can demonstrate business health. Positive cash flow ensures that a business can pay regular expenses, reinvest in inventory and have more stability in case of hard times or off-seasons.

A cash flow measure can also incorporate longer-term expenses and income that needs to be factored in, like pending charges from contractors or products sold on consignment.

» MORE: Chart of accounts: Definition, guide and examples

What are the types of cash flow?

There are three main types of cash flow, which represent business expenses and profits from different sources. Cash flow types include:

Cash flow from operations

This term refers to the cash generated from normal business operations, including money taken in from sales and money spent on goods like materials and inventory. It also factors in overhead expenses and employee salaries.

The total value — operating expenses subtracted by cash received from sales — is usually reported quarterly and annually on a business's cash flow statement.

Cash flow from operations can show whether or not a business is financially viable and determine whether outside financing like a loan is needed.

Cash flow from investing

This term refers to the cash generated from a business’s investments. Investments can include physical assets like equipment or property and securities like stocks and bonds.

Inflows from investing can include the sale of assets and interest from investments, while outflows can consist of asset purchases and losses from securities.

While cash flow from operations should usually be positive, cash flow from investing can be negative, as it shows that a business is actively investing in its long-term health and development.

Cash flow from financing

This term refers to the flow of cash used to fund a business. Cash flow from financing can include equity, debt, and cash moving between the business and its investors or creditors.

All funds associated with raising capital to start or expand a business fall under this category.

Cash flow vs. income vs. profit vs. revenue

Cash flow can often be confused with similar business finance terms. Here are a few clarifications:

Revenue refers to income earned from selling goods or services, even money that isn’t yet available to the business; cash flow tracks actual outflows and inflows in a given period.

Profit refers to the amount left over after subtracting expenses from revenues; cash flow is the amount of money flowing in and out of a business.

Income statements show revenues and total expenses; cash flow statements show a business’s exact cash inflows and outflows.

Calculating cash flow separately from these measures is essential, as the value can be significantly different depending on the business structure.

How is cash flow represented in financial statements?

Businesses report their cash flow in a monthly, quarterly or annual cash flow statement. The statement reports beginning and ending cash balances and shows where and how the business used and received funds in a given period.

A cash flow statement shows how well a business can earn cash, manage expenses and pay off debts and investments. It works alongside a company’s balance sheet and income statement, and public companies must report their statement as of 1988, according to the Financial Accounting Standards Board.

Balance sheet: totals assets and liabilities.

Income statement: shows the business's profitability during a specific period.

Cash flow statement: resolves the other two statements by showing whether revenues have been collected and expenses paid.

The primary value on a cash flow statement is the bottom line item, which is likely the net increase or decrease in cash and cash equivalents. This value shows the overall change in the company’s cash and easily accessible assets.

A way to check that your statements are consistent: The ending balance of a cash flow statement will always equal the cash amount shown on the company's balance sheet.

How can you calculate cash flow?

1. Start with the opening balance.

The opening balance is the total amount of cash in your business accounts.

2. Calculate cash sources (inflow).

This amount is the total money taken in during the period. It includes money received, not sales totals, as a longer-term contract might spread income over several months. Inflow includes cash in from loans, transfers, sales of assets and anything else brought into your business. This total, plus the opening balance, equals the total cash balance.

3. Determine cash uses (outflow).

This value is the total of all payments made, including rent, salaries, inventory, taxes and loan payments. Annual bills should be counted in the month they’re paid, even if your business spreads the budget over the year.

4. Subtract uses from balance .

To find your cash flow value, subtract the outflow total from step 3 from the total cash balance from steps 1 and 2. This final number will also be the opening balance for your next month or operating period.

Separating these calculations into categories — operations, investing and financing — can help clarify the state of your cash flow. A negative balance in investing is usually a good thing, while a negative balance in operations can be a red flag.

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what is cash flow in business plan

Cash Flow Statement: Explanation and Example

Bryce Warnes

Reviewed by

Janet Berry-Johnson, CPA

July 28, 2021

This article is Tax Professional approved

A cash flow statement tells you how much cash is entering and leaving your business in a given period. Along with balance sheets and income statements , it’s one of the three most important financial statements for managing your small business accounting and making sure you have enough cash to keep operating.

What's Bench?

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First, let’s take a closer look at what cash flow statements do for your business, and why they’re so important. Then, we’ll walk through an example cash flow statement, and show you how to create your own using a template.

What is a cash flow statement?

A cash flow statement is a regular financial statement telling you how much cash you have on hand for a specific period.

While income statements are excellent for showing you how much money you’ve spent and earned, they don’t necessarily tell you how much cash you have on hand for a specific period of time.

If you use accrual basis accounting, income and expenses are recorded when they are earned or incurred—not when the money actually leaves or enters your bank accounts. (The cash accounting method only records money once you have it on hand. Learn more about the cash vs. accrual basis systems of accounting.)

So, even if you see income reported on your income statement, you may not have the cash from that income on hand. The cash flow statement makes adjustments to the information recorded on your income statement, so you see your net cash flow—the precise amount of cash you have on hand for that time period.

For example, depreciation is recorded as a monthly expense. However, you’ve already paid cash for the asset you’re depreciating; you record it on a monthly basis in order to see how much it costs you to have the asset each month over the course of its useful life. But cash isn’t literally leaving your bank account every month.

The cash flow statement takes that monthly expense and reverses it—so you see how much cash you have on hand in reality, not how much you’ve spent in theory.

Why do you need cash flow statements?

So long as you use accrual accounting, cash flow statements are an essential part of financial analysis for three reasons:

  • They show your liquidity . That means you know exactly how much operating cash flow you have in case you need to use it. So you know what you can afford, and what you can’t.
  • They show you changes in assets, liabilities, and equity in the forms of cash outflows, cash inflows, and cash being held. Those three categories are the core of your business accounting. Together, they form the accounting equation that lets you measure your performance.
  • They let you predict future cash flows . You can use cash flow statements to create cash flow projections , so you can plan for how much liquidity your business will have in the future. That’s important for making long-term business plans.

On top of that, if you plan on securing a loan or line of credit, you’ll need up-to-date cash flow statements to apply.

Negative cash flow vs. positive cash flow

When your cash flow statement shows a negative number at the bottom, that means you lost cash during the accounting period—you have negative cash flow. It’s important to remember that long-term, negative cash flow isn’t always a bad thing. For example, early stage businesses need to track their burn rate as they try to become profitable.

When you have a positive number at the bottom of your statement, you’ve got positive cash flow for the month. Keep in mind, positive cash flow isn’t always a good thing in the long term. While it gives you more liquidity now, there are negative reasons you may have that money—for instance, by taking on a large loan to bail out your failing business. Positive cash flow isn’t always positive overall.

Where do cash flow statements come from?

If you do your own bookkeeping in Excel , you can calculate cash flow statements each month based on the information on your income statements and balance sheets. If you use accounting software , it can create cash flow statements based on the information you’ve already entered in the general ledger .

Keep in mind, with both those methods, your cash flow statement is only accurate so long as the rest of your bookkeeping is accurate too. The most surefire way to know how much working capital you have is to hire a bookkeeper . They’ll make sure everything adds up, so your cash flow statement always gives you an accurate picture of your company’s financial health.

Statements of cash flow using the direct and indirect methods

In order to figure out your company’s cash flow, you can take one of two routes: The direct method, and the indirect method. While generally accepted accounting principles (US GAAP) approve both, the indirect method is typically preferred by small businesses.

The direct method of calculating cash flow

Using the direct method, you keep a record of cash as it enters and leaves your business, then use that information at the end of the month to prepare a statement of cash flow.

The direct method takes more legwork and organization than the indirect method—you need to produce and track cash receipts for every cash transaction. For that reason, smaller businesses typically prefer the indirect method.

Also worth mentioning: Even if you record cash flows in real time with the direct method, you’ll also need to use the indirect method to reconcile your statement of cash flows with your income statement. So, you can usually expect the direct method to take longer than the indirect method.

The indirect method of calculating cash flow

With the indirect method, you look at the transactions recorded on your income statement, then reverse some of them in order to see your working capital. You’re selectively backtracking your income statement in order to eliminate transactions that don’t show the movement of cash.

Since it’s simpler than the direct method, many small businesses prefer this approach. Also, when using the indirect method, you do not have to go back and reconcile your statements with the direct method.

In our examples below, we’ll use the indirect method of calculating cash flow.

How the cash flow statement works with the income statement and the balance sheet

You use information from your income statement and your balance sheet to create your cash flow statement. The income statement lets you know how money entered and left your business, while the balance sheet shows how those transactions affect different accounts—like accounts receivable , inventory, and accounts payable .

So, the process of producing financial statements for your business goes:

Income Statement + Balance Sheet = Cash Flow Statement

Example of a cash flow statement

Now that we’ve got a sense of what a statement of cash flows does and, broadly, how it’s created, let’s check out an example.

cash-flow-statement

There’s a fair amount to unpack here. But here’s what you need to know to get a rough idea of what this cash flow statement is doing.

  • Red dollar amounts decrease cash. For instance, when we see ($30,000) next to “Increase in inventory,” it means inventory increased by $30,000 on the balance sheet. We bought $30,000 worth of inventory, so our cash balance decreased by that amount.
  • Black dollar amounts increase cash. For example, when we see $20,000 next to “Depreciation,” that $20,000 is an expense on the income statement, but depreciation doesn’t actually decrease cash. So we add it back to net income.

You’ll also notice that the statement of cash flows is broken down into three sections—Cash Flow from Operating Activities, Cash Flow from Investing Activities, and Cash Flow from Financing Activities. Let’s look at what each section of the cash flow statement does.

The three sections of a cash flow statement

These three activities sections of the statement of cash flows designate the different ways cash can enter and leave your business.

  • Cash Flow from Operating Activities is cash earned or spent in the course of regular business activity—the main way your business makes money, by selling products or services.
  • Cash Flow from Investing Activities is cash earned or spent from investments your company makes, such as purchasing equipment or investing in other companies.
  • Cash Flow from Financing Activities is cash earned or spent in the course of financing your company with loans, lines of credit, or owner’s equity .

Using the cash flow statement example above, here’s a more detailed look at what each section does, and what it means for your business.

Cash Flow from Operating Activities

For most small businesses, Operating Activities will include most of your cash flow. That’s because operating activities are what you do to get revenue. If you run a pizza shop, it’s the cash you spend on ingredients and labor, and the cash you earn from selling pies. If you’re a registered massage therapist , Operating Activities is where you see your earned cash from giving massages, and the cash you spend on rent and utilities.

Cash Flow from Operating Activities in our example

Taking another look at this section, let’s break it down line by line.

Net income is the total income, after expenses, for the month. We get this from the income statement.

Depreciation is recorded as a $20,000 expense on the income statement. Here, it’s listed as income. Since no cash actually left our hands, we’re adding that $20,000 back to cash on hand.

Increase in Accounts Payable is recorded as a $10,000 expense on the income statement. That’s money we owe—in this case, let’s say it’s paying contractors to build a new goat pen. Since we owe the money, but haven’t actually paid it, we add that amount back to the cash on hand.

Increase in Accounts Receivable is recorded as a $20,000 growth in accounts receivable on the income statement. That’s money we’ve charged clients—but we haven’t actually been paid yet. Even though the money we’ve charged is an asset, it isn’t cold hard cash. So we deduct that $20,000 from cash on hand.

Increase in Inventory is recorded as a $30,000 growth in inventory on the balance sheet. That means we’ve paid $30,000 cash to get $30,000 worth of inventory. Inventory is an asset, but it isn’t cash—we can’t spend it. So we deduct the $30,000 from cash on hand.

Net Cash from Operating Activities , after we’ve made all the changes above, comes out to $40,000.

Meaning, even though our business earned $60,000 in October (as reported on our income statement), we only actually received $40,000 in cash from operating activities.

Cash Flow from Investing Activities

This section covers investments your company has made—by purchasing equipment, real estate, land, or easily liquidated financial products referred to as “cash equivalents.” When you spend cash on an investment, that cash gets converted to an asset of equal value.

If you buy a $10,000 mower for your landscaping company, you lose $10,000 cash and get a $10,000 mower. If you buy a $140,000 retail space, you lose $140,000 cash and get a $140,000 retail space.

Under Cash Flow from Investing Activities, we reverse those investments, removing the cash on hand. They have cash value, but they aren’t the same as cash—and the only asset we’re interested in, in this context, is currency.

For small businesses, Cash Flow from Investing Activities usually won’t make up the majority of cash flow for your company. But it still needs to be reconciled, since it affects your working capital.

Cash Flow from Investing Activities in our example

Purchase of Equipment is recorded as a new $5,000 asset on our income statement. It’s an asset, not cash—so, with ($5,000) on the cash flow statement, we deduct $5,000 from cash on hand.

Cash Flow from Financing Activities

This section covers revenue earned or assets spent on Financing Activities. When you pay off part of your loan or line of credit, money leaves your bank accounts. When you tap your line of credit, get a loan, or bring on a new investor, you receive cash in your accounts.

Cash Flow from Financing Activities in our example

Notes payable is recorded as a $7,500 liability on the balance sheet. Since we received proceeds from the loan, we record it as a $7,500 increase to cash on hand.

Cash flow for the month

At the bottom of our cash flow statement, we see our total cash flow for the month: $42,500.

Even though our net income listed at the top of the cash flow statement (and taken from our income statement) was $60,000, we only received $42,500.

That’s $42,500 we can spend right now, if need be. If we only looked at our net income, we might believe we had $60,000 cash on hand. In that case, we wouldn’t truly know what we had to work with—and we’d run the risk of overspending, budgeting incorrectly, or misrepresenting our liquidity to loan officers or business partners.

Using a cash flow statement template

Do your own bookkeeping using spreadsheets? In that case, using a cash flow statement template will save you time and energy.

Our Free Cash Flow Statement Template is easy to download and simple to use.

How to track cash flow using the indirect method

Four simple rules to remember as you create your cash flow statement:

  • Transactions that show an increase in assets result in a decrease in cash flow.
  • Transactions that show a decrease in assets result in an increase in cash flow.
  • Transactions that show an increase in liabilities result in an increase in cash flow.
  • Transactions that show a decrease in liabilities result in a decrease in cash flow.

If you’ve already gone through the example statement above and you feel like you have a pretty good grasp of how to create a cash flow statement, go ahead and start experimenting with our Free Income Statement Template and Free Cash Flow Template .

But if you’d like to get a clearer idea of how it all works, this quick example should help.

Creating a cash flow statement from your income statement and balance sheet

Let’s say we’re creating a cash flow statement for Greg’s Popsicle Stand for July 2019.

Our income statement looks like this:

greg-income-statement

Note: For the sake of simplicity, this example omits income tax.

And our balance sheet looks like this:

greg-balance-sheet

Remember the four rules for converting information from an income statement to a cash flow statement? Let’s use them to create our cash flow statement.

greg-cash-flow-statement

Our net income for the month on the income statement is $3,500 — that stays the same, since it’s a total amount, not a specific account.

Additions to Cash

  • Depreciation is included in expenses for the month, but it didn’t actually impact cash, so we add that back to cash.
  • Accounts payable increased by $5,500. That’s a liability on the balance sheet, but the cash wasn’t actually paid out for those expenses, so we add them back to cash as well.

Decreases to Cash

  • Accounts receivable increased by $4,000. That’s an asset recorded on the balance sheet, but we didn’t actually receive the cash, so we remove it from cash on hand.

Our net cash flow from operating activities adds up to $5,500.

Greg purchased $5,000 of equipment during this accounting period, so he spent $5,000 of cash on investing activities.

Greg didn’t invest any additional money in the business, take out a new loan, or make cash payments towards any existing debt during this accounting period, so there are no cash flows from financing activities.

Cash Flow for Month Ending July 31, 2019 is $500, once we crunch all the numbers. Greg started the accounting period with $5,500 in cash. After accounting for all of the additions and subtractions to cash, he has $6,000 at the end of the period.

Cash flow statements are powerful financial reports, so long as they’re used in tandem with income statements and balance sheets. See how all three financial statements work together.

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How to Prepare a Cash Flow Statement

Business professionals preparing a cash flow statement

  • 07 Dec 2021

Cash flow statements are one of the three fundamental financial statements financial leaders use. Along with income statements and balance sheets, cash flow statements provide crucial financial data that informs organizational decision-making. While all three are important to the assessment of a company’s finances, some business leaders might argue cash flow statements are the most important.

Business owners, managers, and company stakeholders use cash flow statements to better understand their companies’ value and overall health and guide financial decision-making. Regardless of your position, learning how to create and interpret financial statements can empower you to understand your company’s inner workings and contribute to its future success.

Related: The Beginner's Guide to Reading & Understanding Financial Statements

Here’s a look at what a cash flow statement is and how to create one.

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What Is a Cash Flow Statement?

A cash flow statement is a financial report that details how cash entered and left a business during a reporting period .

According to the online course Financial Accounting : “The purpose of the statement of cash flows is to provide a more detailed picture of what happened to a business’s cash during an accounting period.”

Related: How to Read & Understand a Cash Flow Statement

Since cash flow statements provide insight into different areas a business used or received cash during a specific period, they’re important financial statements when it comes to valuing a company and understanding how it operates.

A typical cash flow statement comprises three sections: cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities.

How to Create a Cash Flow Statement

how to prepare a cash flow statement

1. Determine the Starting Balance

The first step in preparing a cash flow statement is determining the starting balance of cash and cash equivalents at the beginning of the reporting period. This value can be found on the income statement of the same accounting period.

The starting cash balance is necessary when leveraging the indirect method of calculating cash flow from operating activities. However, the direct method doesn’t require this information.

2. Calculate Cash Flow from Operating Activities

One you have your starting balance, you need to calculate cash flow from operating activities. This step is crucial because it reveals how much cash a company generated from its operations.

Cash flow from operations are calculated using either the direct or indirect method.

Direct Method

The direct method of calculating cash flow from operating activities is a straightforward process that involves taking all the cash collections from operations and subtracting all the cash disbursements from operations. This approach lists all the transactions that resulted in cash paid or received during the reporting period.

Indirect Method

The indirect method of calculating cash flow from operating activities requires you to start with net income from the income statement (see step one above) and make adjustments to “undo” the impact of the accruals made during the reporting period. Some of the most common and consistent adjustments include depreciation and amortization.

Related: Financial Terminology: 20 Financial Terms to Know

Both the direct and indirect methods will result in the same number, but the process of calculating cash flow from operations differs.

While the direct method is easier to understand, it’s more time-consuming because it requires accounting for every transaction that took place during the reporting period. Most companies prefer the indirect method because it's faster and closely linked to the balance sheet. However, both methods are accepted by Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).

Related: GAAP vs. IFRS: What Are the Key Differences and Which Should You Use?

3. Calculate Cash Flow from Investing Activities

After calculating cash flows from operating activities, you need to calculate cash flows from investing activities. This section of the cash flow statement details cash flows related to the buying and selling of long-term assets like property, facilities, and equipment. Keep in mind that this section only includes investing activities involving free cash, not debt.

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4. Calculate Cash Flow from Financing Activity

The third section of the cash flow statement examines cash inflows and outflows related to financing activities. This includes cash flows from both debt and equity financing—cash flows associated with raising cash and paying back debts to investors and creditors.

When using GAAP, this section also includes dividends paid, which may be included in the operating section when using IFRS standards. Interest paid is included in the operating section under GAAP, but sometimes in the financing section under IFRS as well.

5. Determine the Ending Balance

Once cash flows generated from the three main types of business activities are accounted for, you can determine the ending balance of cash and cash equivalents at the close of the reporting period.

The change in net cash for the period is equal to the sum of cash flows from operating, investing, and financing activities. This value shows the total amount of cash a company gained or lost during the reporting period. A positive net cash flow indicates a company had more cash flowing into it than out of it, while a negative net cash flow indicates it spent more than it earned.

Cash Flow Statement Example

To help visualize each section of the cash flow statement, here’s an example of a fictional company generated using the indirect method.

cash flow statement example

Go to the alternative version .

This cash flow statement is for a reporting period that ended on Sept. 28, 2019. As you'll notice at the top of the statement, the opening balance of cash and cash equivalents was approximately $10.7 billion.

During the reporting period, operating activities generated a total of $53.7 billion. The investing activities section shows the business used a total of $33.8 billion in transactions related to investments. The financing activities section shows a total of $16.3 billion was spent on activities related to debt and equity financing.

At the bottom of the cash flow statement, the three sections are summed to total a $3.5 billion increase in cash and cash equivalents over the course of the reporting period. Therefore, the final balance of cash and cash equivalents at the end of the year equals $14.3 billion.

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Financial Decision-Making

Whether you’re a manager, entrepreneur, or individual contributor, understanding how to create and leverage financial statements is essential for making sound business decisions.

The statement of cash flows is one of the most important financial reports to understand because it provides detailed insights into how a company spends and makes its cash. By learning how to create and analyze cash flow statements, you can make better, more informed decisions, regardless of your position.

Are you interested in gaining a toolkit for making smarter financial decisions and the confidence to clearly communicate them to key stakeholders? Explore Financial Accounting —one of three courses comprising our Credential of Readiness (CORe) program —to discover how you can unlock critical insights into your organization’s performance and potential. Not sure which course is right for you? Download our free flowchart .

Data Tables

Company a - statement of cash flows (alternative version).

Year Ended September 28, 2019 (In millions)

Cash and cash equivalents, beginning of the year: $10,746

OPERATING ACTIVITIES

Investing activities, financing activities.

Increase / Decrease in Cash and Cash Equivalents: 3,513

Cash and Cash Equivalents, End of Year: $14,259

Go back to the article .

what is cash flow in business plan

About the Author

Home > Finance > Accounting

What Is a Cash Flow Statement?

Kylie McQuarrie

We are committed to sharing unbiased reviews. Some of the links on our site are from our partners who compensate us. Read our editorial guidelines and advertising disclosure .

A cash flow statement is a crucial financial document that details all your sources of cash over a given period of time. It also breaks down where you've spent that money so you can see if your business is making more money than it spends.

Your cash flow statement is one of your business’s most important financial statements. Along with your profit and loss statement and balance sheet, it shows whether your business is on the path to success, and if not, how you can get back on track.

Let's explore what information a cash flow statement includes, how you can create one, and why tracking cash flow should be at the very top of your accounting to-do list. 

If you're searching for accounting software that's user-friendly, full of smart features, and scales with your business, Quickbooks is a great option.

What information is on a cash flow statement?

Cash flow statements sound pretty basic. First, they list all of your business's sources of cash, including sales and investments. Then they list everything you spend money on, such as employee salaries, debt payments, and equipment maintenance.

But since this is accounting we're talking about, creating a cash flow statement isn't quite as simple as it sounds. (Don't worry—we're 100% confident you can figure it out with a little help.)

Cash flow statements split your inflow and outflow of cash into three main categories:

  • Cash flow from operating activities
  • Cash flow from investing activities
  • Cash flow from financing activities

Cash flow from operating activities means all cash that comes from or goes into your business’s daily operations. You can also think of cash from operating activities as cash related to revenue , so any money you spend or make on a product, plus any wages you pay workers who help make that product, falls under this category. So do income taxes, rent payments, interest rates, and any other cash flow that impacts how much money your business earns in daily profit.

Cash flow from investing activities means any cash earned or lost on activities like buying or selling an asset—say, a piece of property or equipment. Unlike operating activities, which include daily, short-term gains and expenses, investing activities are all about the long term. Money from assets like equipment or long-term investments falls under this category. These types of assets are also called non-current assets .

what is cash flow in business plan

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The investing activities section also tells you your capital expenditures (sometimes styled capex, CapEx, or CAPEX). Capital expenditures are the money you use to reinvest in your physical assets—things like upgrading your bakery’s refrigerators or even building a whole new manufacturing plant. These kinds of expenses are considered investments in your company’s future, not a typical expenditure.

Cash flow from financing activities means money gained or spent financing your business. This includes shareholders’ equity, the amount of money investors have put into your company via loans or stock, and any other money flowing between you and your creditors.

Looking at a cash flow statement will tell you if you have negative cash flow or positive cash flow . If the former, you’re losing more money than you’re gaining, which could mean it’s time to cut costs and figure out how to up your revenue. If the latter, you’re in a good position to expand and invest in your company’s future.

What is free cash flow?

Cash flow statements give you and your potential investors a lot of crucial information, but one of the most important is free cash flow. Free cash flow, or FCF, is the money remaining when you subtract your capital expenditures from your operating cash flow.

A high FCF usually means your company is growing, so investors can buy stock at a lower cost while expecting their investment’s value to increase soon. Meanwhile, a low FCF tells investors your company isn’t doing well, so your shareholders’ equity isn’t likely to increase anytime soon.

What are the main types of cash flow statements?

There are two different types of cash flow statements: direct and indirect. The main difference between the two is how they tally up your cash gains and losses from operating activities.

Indirect cash flow statements are the more common type of cash flow statement. They start the operating activities section with your company’s net income , or the money you have after deducting expenses. (Hint: find your net income using a profit and loss statement , which is also called an income statement.)

From the net income, you adjust for non-cash items that still impact your bottom line, like depreciation and amortization.

Why do most businesses use indirect cash flow statements? Because non-cash aspects of your business’s finances impact the money you make from daily operations. Incorporating those non-cash assets into your cash flow statements gives you a better picture of how well you’re really doing financially.

In contrast, direct cash flow statements leave out the non-cash aspects of your cash flow from operations. These statements don’t start out with the net income—instead, they simply show how much you earn and how much you spend by listing every cash payment and receipt over a given time period.

If you read that and think, “Yikes, listing every cash payment and receipt on one document sounds super time-consuming and not all that helpful,” you’re right. In general, direct cash flow statements take too much time for the average small-business owner to prepare. Plus, they lack the big-picture accuracy of indirect cash flow statements.

How do you create a cash flow statement?

You don't need to draw up a cash flow statement entirely by hand—generations of accountants have perfected the process of calculating cash flow, so you can simply download a template and plug in your own numbers.

If you don't have accounting software, you can find a cash flow statement template on Microsoft Office. Its 12-month cash flow template for Excel will set you up with the basics.

Alternatively, turn the task over to an accountant. They’re paid to deal with the kinds of complexities that cash flow statements demand.

Or you can look for accounting or bookkeeping software that draws up reports for you. Either way, you won’t have to worry about calculating your own capex or FCF. A spreadsheet formula, accountant, or bookkeeping software program can do it for you.

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The takeaway

Cash flow statements can be complicated, so it’s okay to be intimidated if you’ve never prepared one before. But since they show exactly how much cash you have at a given moment, cash flow statements are the one financial document you can’t do without. Put one together the next time you want to see where your cash is going, where it’s coming from, and how you want to spend or save it.

Want help preparing a cash flow statement? Finding accounting software for your small business can help streamline your financial statements.

Related reading

  • The Best Tools for Creating a Financial Statement
  • How to Read a Financial Statement
  • What Are Cash Flow Loans and What Options Are Available for Small Businesses?
  • Why Cash Flow Is Important for Your Small Businesses

Cash flow FAQs

A cash flow statement is a crucial financial document that lists both your business's sources of cash and your business's expenses over a given time period. A cash flow statement shows if you're earning more money than you're spending. Basically, the document it gives you (and your investors) key insights into whether or not your business is actually profitable.

A cash flow statement is the best way to see how much money you're making and losing over any given time period—anywhere from two weeks to a month, a year, or five years. Looking over a cash flow statement is one of the best ways to find areas to cut back so you can maximize your business's profits. It can also show you which aspects of your business are bringing in the most money so you can invest in those areas while cutting back in others. 

Cash flow statements are important, but they're just one piece in the puzzle of your business's finances. To get a clear snapshot of how your business is really doing, you should be generating cash flow statements, profit and loss statements, and balance sheets on a regular basis. 

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Tim Berry

Planning, Startups, Stories

Tim berry on business planning, starting and growing your business, and having a life in the meantime., standard business plan financials: how to project cash flow.

No matter what your business planning objectives, cash flow is still the most vital resource in the business, and managing cash is the single most important business function. Without cash, you go under. So I always assume cash flow is included in every kind of real business plan. And it is the most important component of standard business plan financials. This is another of my series on standard business plan financials .

profits-vs-cash-small

(Important: If you’re using LivePlan, life gets a lot easier for you. Please read LivePlan Cash Flow instead of this post. )

The Projected Cash Flow is what links the other two of the three essential projections, the Projected Profit and Loss and Projected Balance Sheet, together. The cash flow completes the system. It reconciles the Profit and Loss with the Balance.

Experts can be annoying. There are several ways to do a cash flow plan. Sometimes it seems like as soon as you use one method, somebody who is supposed to know tells you you’ve done it wrong. Often that means that expert doesn’t know enough to realize there is more than one way to do it.  I’m doing direct cash flow for this post. I may do indirect in a later post.

Direct Cash Flow

So here is a direct cash flow plan. You can see the potential complications and the need for linking up the numbers from the other statements. Your estimated receipts from accounts receivable must have a logical relationship to sales and the balance of accounts receivable. Likewise, your payments of accounts payable have to relate to the balances of payables and the costs and expenses that created the payables. Vital as this is to business survival, it is not nearly as intuitive as the sales forecast, personnel plan, or income statement. The mathematics and the financial projections are more complex.

Here’s a sample Projected Cash Flow for a bicycle shop, so you can see how that works:

Cash Flow Example

Estimating Receipts from Receivables

The first two rows of Garrett’s cash flow projection depend on detailed estimates of money coming in as his customers on account pay their invoices. To estimate that, he lays out his guess based on the assumption that only 10% of his sales are on credit (on account), and that his customers pay their invoices in about one month on average. That estimate looks like this:

cycle-shop-receivables-analysis

In this case, the sales on credit are 10% of the estimated total sales in the Sales Forecast, $26,630. That’s the result of Garrett’s assumption, based on the nature of his business. And the money involved comes in one month later. This worksheet projects the Accounts Receivable value in Garrett’s Projected Balance Sheet, as well as the Received from AR value in the Projected Cash Flow. The receivables analysis depends on information in the Profit and Loss Projection, plus an assumption about Sales on Credit, and another on waiting time before payment. And it affects the Projected Balance and the Projected Cash Flow, as shown in this next illustration:

Cash and Receivables

Estimating the Impact of Inventory

Inventory presents another set of important cash-related assumptions. I explained earlier that in the case of inventory, proper accounting practices require special details. The cost of inventory that shows up in the Projected Profit and Loss is related to timing of sales. The actual cash flow implications of inventory depend on when new inventory is purchased, as shown here:

sample-inventory-cash-analysis

As with Accounts Receivable in the previous illustration, the inventory analysis depends on information from the Sales Forecast, and it sends information to both the Projected Balance Sheet (Ending Inventory) and the Projected Cash Flow (Inventory Purchase).

Estimating the Impact of Payables

Most businesses wait a month or so before they pay invoices for goods and services received from other businesses. That means we can save on our cash flow by holding back some money and paying it later. With proper accrual accounting, that money is recorded on the Balance Sheet as Accounts Payable. Estimating Accounts Payable takes a careful combination of calculations and assumptions. First we have to collect the full amount of payments. Then we account for payments made immediately, not held in Accounts Payable. After that, we estimate how long, on average, we hold payments. That analysis is shown below:

Cash and Payables

In this case, it is assumed that the store will pay its bills about a month after it receives them.

Cash Flow is About Management

Reminder: you should know how to project cash flow using competent educated guesses based on an understanding of the flow in your business of sales, sales on credit, receivables, inventory, and payables. These are useful projections. But real management is minding the projections every month with plan vs. actual analysis so you can catch changes in time to manage them. The illustration here shows projected profits for the bicycle store compared to the projected cash flow, using the projections presented in this chapter:

Profits vs. Cash

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what is cash flow in business plan

How To Create a Cash Flow Statement for Your Business

Maddy Osman

Updated: August 11, 2023

Published: July 14, 2023

As the old adage goes, “Cash (flow) is king.”

Cash flow statement

For business owners, understanding cash inflows and outflows is critical for making financial decisions. Creating a cash flow statement gives you a bird’s-eye view of your company’s finances. Along with your income statement and balance sheet, it can help you estimate profitability and evaluate the need for funding.

On the other hand, you risk unexpected financial issues, liquidity problems, and missed opportunities without a clear view of your business’s cash flow. 

→ Download Now: 5 Financial Planning Templates

What is a cash flow statement? 

A cash flow statement summarizes your company's cash inflows and outflows. It’s a snapshot of the amount of cash entering and leaving your business, enabling you to evaluate its financial health.

Typically, you create a cash flow document every month, quarter, or year.

This financial statement is divided into three main business activities:

Operating activities

Investing activities, financing activities.

Each section details the cash generated or used by different business functions, giving you insights into your company’s liquidity, solvency, and overall financial performance.

Why is a cash flow statement important?

A cash flow statement is a helpful tool for business leaders. Its functions include: 

  • Assessing financial health
  • Informing decision-making
  • Assisting with budgeting and forecasting
  • Helping to attract investors

A cash flow statement helps you evaluate your company’s financial health by showcasing its ability to generate revenue and meet financial obligations. A positive cash flow indicates a healthy business, while a negative cash flow may signal potential problems. 

This document will help you understand where your money is coming from, where it goes, and if you need to make adjustments. Additionally, your cash flow statement forecasts future revenue and assists with creating future budgets. 

For example, say the statement reveals a positive cash flow of $1k from operating activities. But your cash outflow of $900 is high because you’ve invested in new equipment and inventory. 

What if your company’s new equipment doesn’t end up generating additional cash flow? The $100 positive difference might stagnate or even decrease, leading to potential losses. However, you could consider further investments in other areas.

What goes into cash flow statements?

Three components come together to form a cash flow statement: 

This represents your core business operations. Cash flow here comes from selling products or providing services, minus operating expenses . This part of your statement is akin to your business’s heart rate, reflecting the viability of your business model. 

The cash flow from investing activities sums up the cash used or received from investments. For example, it’s money you spend on assets like machinery, real estate, or cash you gain from the sale of assets. 

Consider it a summary of your investment performance. 

Lastly, the cash flow from financing activities shows the cash from your financial dealings. It includes money from loans or investors minus payments made to shareholders or loan repayments. 

This section uncovers your business’s ability to balance debt, equity, and dividend payments. Essentially, it’s your financial balancing act in numbers.

Cash flow formulas

There are two ways to calculate net cash flow: indirect and direct. Both can be used for a cash flow statement, but the calculations can show you different information. 

Indirect method

The indirect method keeps finances simple by starting the calculation with net income rather than listing out all cash receipts.

The main benefit of starting with net income is convenience. A step-by-step explanation of the indirect method: 

  • Start with the net income from your financial statement
  • Add back non-cash expenses, like amortization and depreciation
  • Adjust for changes in working capital, including accounts receivable, inventory, and accounts payable
  • Add or subtract cash flow from investing and financing activities

Since the indirect method starts with net income, it doesn’t show as much detail as the direct method. However, most companies choose the indirect method because it’s easier — the direct method requires you to view and calculate each cash transaction when calculating net cash flow.

Direct method

The direct method offers a more detailed view of cash transactions by showing cash inflows and outflows from operating activities. You’ll need access to cash transaction data, including the cash receipts you pay suppliers and those you receive from customers. 

Here’s how to calculate cash flow using the direct method: 

  • List cash receipts from customers
  • Deduct cash payments to suppliers, employees, and other operating expenses
  • Calculate cash flow from operating activities

You’ll gain a deeper understanding of operating inflows and outflows using the direct method. For instance, you would know if your cash flow changed because a supplier charged less or because a store is selling more. Then, you could adjust your strategy moving forward.

However, you’ll need to spend more time gathering bookkeeping numbers to achieve the same result as the indirect method.  

How to make a cash flow statement 

1. choose how often you’ll make cash flow statements.

Decide how often you want to create a statement. Daily? Weekly? Monthly? Like getting maintenance done on your car, regular statements help you address issues early. 

Megan Dunn, vice president of finance at employee reimbursement platform Compt, recommends most businesses focus on the big picture rather than minor details. Unless your company is in a tight financial spot, weekly cash flow statements can effectively assist with forecasting , identifying funding needs, and planning for worst-case scenarios. 

2. Gather data from the three types of financing activities 

Next, gather your data. This is where you’ll collect your cash receipts for the direct method or net income statements for the indirect method. 

For your operating activities, include your total revenue from your income statement and expenses like employee salaries, production costs, or rent. 

For example, say you made $500k in revenue this year and spent $300k in operating expenses. For your operating activities, you’ll net $200k. 

Your investment activities might be investment properties, stock purchases, or equipment. Using the same example, say you invested $50k into a factory. You’ll net -$50k for investments. 

Lastly, your financing activities will include seed rounds , loans, liabilities, or dividend payments to shareholders. Assume you received $100k in funding for the year.

3. Calculate the net cash flow 

Now that you’ve collected the numbers, it’s time to crunch them. Net cash flow is the sum of your income or expenses from operating, investment, and financing activities. 

Here’s what the example would look like:

$200k + (-$50k) + 100k = $250k in net cash flow. 

4. Determine the overall change in cash for the period

Your overall change in cash is the last part of the cash flow statement, showing how much you’ve increased or decreased cash reserves. It’s a snapshot of your company’s liquidity from each accounting period, enabling you to track changes in your company’s cash flows month over month, year over year. 

You calculate it by subtracting the starting cash balance for the time period from the ending cash balance (net cash flow).

For example, assume the previous cash balance was $100k, and the net cash flow for this period is $250k. When you subtract the $100k, you get a positive change in cash of $150k.  

Cash flow statement example 

Now that you have the data, it’s time to put it into graph form and compare it to past and future statements. The easiest way to convert raw numbers into graphics is via Excel or Google Sheets . 

Here’s a simple way to format your cash flow statement using the example from earlier: 

Screenshot 2023-06-15 at 11.44.46 AM

How to use a cash flow statement

Think of cash flow statements as your GPS. They tell you where you’ve been and help you chart where you’re going. 

Say your cash from operating activities has gradually decreased in the past few quarters. This could be a red flag signaling your core business operations might not be as profitable as they once were.

Whether it’s because of more competition or economic concerns, this insight would help guide your decision-making. 

Additionally, cash flow statements are great for analyzing your company’s liquidity or cash equivalents — how easily you can pay your bills. 

For example, say your ecommerce company consistently generates enough revenue for employees’ paychecks, product costs, and office rent. However, if revenue drops and your profitability shrinks, it might be time to rethink marketing strategies, cut operational costs, or seek additional funding. 

Lastly, cash flow statements gauge your company’s solvency and financial health. The question is — can you meet your long-term obligations? 

If your business constantly needs new funding because your cash flow isn’t positive, you have solvency issues. Regular cash flow statements keep you aware of the problem and allow you to make adjustments quickly. 

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The importance of cash flow statements in business planning.

May 20, 2023

what is cash flow in business plan

As a business owner or manager, it’s essential to understand the concept of cash flow. Cash flow is the movement of money in and out of your business and is critical for your business's survival and growth. 82% of all businesses fail due to poor cash flow management or poor understanding of cash flow itself. [ 1 ] In this article, we’ll explain what cash flow statements are, why they’re important in business planning, how to create a cash flow statement and how to analyze it, common cash flow problems and solutions, and cash flow forecasting and budgeting.

Understanding Cash Flow in Business

Cash flow is the lifeblood of any business. It’s the money that comes in and goes out of your business, and it’s crucial to keep it running smoothly. There are two types of cash flow: positive cash flow and negative cash flow.

Positive cash flow occurs when the money coming into your business is greater than the money going out. This means you have enough money to cover your expenses, pay your employees, and invest in your business's growth. Negative cash flow occurs when the money going out of your business is greater than the money coming in. This means you may not have enough money to cover your expenses, pay your employees, or invest in your business's growth.

What are Cash Flow Statements?

Cash flow statements are financial documents that show the movement of money in and out of your business over a specific period. They show how much money came in, how much money went out, and the difference between the two. 38% of small businesses fail because they run out of cash, and only 45% of small business owners monitor their cash flow. [ 2 ] Cash flow statements help in understanding your business's financial health and making informed decisions about its future.

Cash flow statements are divided into three sections: operating activities, investing activities, and financing activities:

Operating activities show the money coming in and going out of your business's day-to-day operations, such as sales and expenses.

Investing activities show the money coming in and going out of your business's investments, such as buying or selling assets.

Financing activities show the money coming in and going out of your business's financing activities, such as taking out a loan or paying dividends to shareholders.

Why are Cash Flow Statements Important in Business Planning?

Cash flow statements provide insight into your business's financial health. They show how much money is coming in and going out of your business, and they help you understand your business's cash flow patterns. By analyzing your cash flow statement, you can identify areas where you may need to increase revenue or decrease expenses. You can also use your cash flow statement to make informed decisions about investing in your business's growth or paying off debt.

Cash flow statements are necessary for securing financing or investment for your business. Investors and lenders want to see that your business has positive cash flow and is financially healthy. By providing a cash flow statement, you can demonstrate your business's financial stability and potential for growth.

How to Create a Cash Flow Statement

Creating a cash flow statement is relatively straightforward. You can create one using a spreadsheet program like Microsoft Excel or Google Sheets. Here are the steps to create a cash flow statement:

  • Identify the period you want to create the cash flow statement for, such as a month or a quarter.
  • Gather your business's financial documents, such as income statements and balance sheets, for the period you want to create the cash flow statement for.
  • Create three sections for your cash flow statement: operating activities, investing activities, and financing activities.
  • Enter the money coming in and going out of your business for each section.
  • Calculate the net cash flow for each section by subtracting the money going out from the money coming in.
  • Calculate the total net cash flow by adding the net cash flow for each section.
  • Analyze the cash flow statement to identify areas where you may need to increase revenue or decrease expenses.

Analyzing Your Cash Flow Statement

Here are some things to look for when analyzing your cash flow statement:

Positive or negative cash flow: Positive cash flow means you have enough money to cover your expenses and invest in your business's growth. Negative cash flow means you may not have enough money to cover your expenses, pay your employees, or invest in growing your business.

Cash flow patterns: Look for patterns in your cash flow statement. Are there times when your business has more cash coming in or going out? Understanding your cash flow patterns can help you make informed decisions about the future.

Cash flow ratios: Calculate your business's cash flow ratios, such as the operating cash flow ratio and the free cash flow ratio. These ratios can help you determine your business's liquidity and financial health.

Common Cash Flow Problems

Many businesses experience cash flow problems at some point. Here are some common cash flow problems and solutions:

Slow-paying customers: If your customers are slow to pay their invoices, it can put a strain on your cash flow. Consider offering incentives for early payment, such as a discount or free shipping. Nearly one-third (31%) of small business owners say they wait more than 30 days for payments. [ 3 ]

Seasonal fluctuations: If your business is seasonal, you may experience fluctuations in cash flow throughout the year. Consider setting aside money during your busy season to cover expenses during slower periods.

Overhead expenses: If your overhead expenses are too high, it can eat into your cash flow. Consider reducing your expenses by renegotiating contracts or finding more cost-effective solutions.

Cash Flow Forecasting and Budgeting

Cash flow forecasting involves predicting how much money will come in and go out of your business over a specific period. Cash flow budgeting involves creating a plan for how you will allocate your business's cash flow.

Here are some tips for cash flow forecasting and budgeting:

Use historical data to make predictions: Look at your past cash flow statements to make predictions about your future cash flow.

Plan for contingencies: Account for unexpected expenses or changes in revenue when creating your cash flow forecast and budget.

Monitor your cash flow regularly: Regularly monitoring your cash flow can help you identify issues early and take action to address them.

Cash flow statements are important for business planning and financial management. They provide insight into your business's financial health and help you make informed decisions about its future. By creating and analyzing your cash flow statement, you can identify areas for improvement and make changes to increase your business's profitability. Cash flow forecasting and budgeting are also critical for managing your business's cash flow and ensuring its long-term success.

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Preparing a cash flow forecast: Simple steps for vital insight

One of the questions we’re often asked by small business owners is, “how do I prepare a cash flow forecast?” It’s an important part of financial planning for any business. But, if you’re an entrepreneur or founder, you may not have an accounting or finance background.

It’s really simple to create your own forecast. And once you know how, it will become one of the most important pieces of insight into your business you have.

Why is a cash flow forecast important?

Cash flow planning is essential: you need cash in the bank to pay your bills. Staying on top of your cash flow will help you see if you’re going to run out of money - and when - so you can prepare ahead of time. Perhaps it will show you that you need to cut overheads, find new investment, or spend time generating sales.

On the flip side, you might be doing well, and you’re considering expanding into new markets, investing in new products, taking on bigger premises, or recruiting new staff. Having accurate cash flow projections will help you see if you can afford to take the plunge.

Four steps to a simple cash flow forecast

One option is to use free financial forecasting software online, which can help you plan ahead for the next week, 30 days, or six weeks. Or you can follow the four steps below to build your own cash flow forecast.

1. Decide how far out you want to plan for

Cash flow planning can cover anything from a few weeks to many months. Plan as far ahead as you can accurately predict. If you’re well-established, you might have a predictable sales pipeline and data from previous years. If you’re a new business, you might not have a huge amount of data - so the further out you go, the less accurate your predictions will be.

Don’t worry too much if you can’t plan far ahead. Your cash flow forecast can change over time. In fact, it should. As things change, or you get more exact estimates, you can update your plan.

2. List all your income

For each week or month in your cash flow forecast, list all the cash you’ve got coming in. Have one column for each week or month, and one row for each type of income.

Start with your sales, adding them to the appropriate week or month. You might be able to predict this from previous years’ figures, if you have them. Remember though, this is about when the cash is actually in your bank account. Put the figures in for when you know clients will pay invoices, or bank payments will clear.

Also remember to include all non-sales income, for example:

  • Tax refunds
  • Investment from shareholders or owners
  • Royalties or licence fees

Add up the total for each column to get your net income.

3. List all your outgoings

Now you know what’s coming in, work out what you’ve got going out. For each week or month, make a list of all the money you’ll be spending, for example:

  • Raw material
  • Bank loans, fees and charges
  • Marketing and advertising spend

Once you’ve listed everything you spend, add up the total for each column to get your net outgoings.

4. Work out your running cash flow

For each week or month column, take away your net outgoings from your net income. That will give you either a positive cash flow figure (you’ve got more cash coming in than you’re spending) or a negative cash flow figure (you’re spending more than you’ve got coming in).

You can then keep a running total, from week to week, or month to month, to get a picture of your cash flow forecast over time. Too many negative weeks might spell trouble, and you’ll need to do some forward-planning to make sure you can meet your commitments - e.g. paying salaries, loan payments, and rent. Equally a few positive months might signal that you’ve got money to expand or invest.

Jenni Chance

Jenni Chance

Senior Manager, Entrepreneurial & Private Business, PwC United Kingdom

© 2017 - 2024 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.

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  • Cash Flow Projection – The Co...

Cash Flow Projection – The Complete Guide (Template + Examples)

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Key Takeaways

  • Receive a step-by-step guide for developing a cash flow projection model.
  • Examine real-world examples that illustrate how cash flow projections function in practice.
  • Learn from industry executives as they discuss the six shortfalls in cash flow projections and offer strategies for overcoming them.

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Introduction

Cash flow projections represent the beating heart of a company’s financial rhythm. It’s not just a tool; it’s a compass that guides the CFO’s office in making critical decisions for growth, stability, and seizing opportunities—and at what rate.

When done right, finance teams are at their best, firing on all cylinders, and everyone wins. But finger-pointing and distrust can spread like wildfire when done wrong,” highlights Gerry Daly, AVP of Product Strategy – Treasury at HighRadius. “Cash flow optimization is a team sport; a top-notch projecting process can vault performance to new heights.”

This post will explain everything you need to know about cash flow projections — what it is, steps to project and forecast your cash flow, and best practices by industry experts.

What Is Cash Flow?

To grasp the concept of cash flow projections, we must first understand the essence of cash flow itself. Cash flow is all about the movement of money flowing in and out of business. It reflects the company’s financial health and liquidity, capturing the inflows and outflows of cash over a specific timeframe.

To truly grasp your business’s financial landscape, you must understand the stages of cash flow: operating, investing, and financing activities, and how to analyze and make sense of it.

How to Perform a Cash Flow Analysis (Template + Examples)

What Is Cash Flow Projection?

Cash flow projection is the process of estimating and predicting future cash inflows and outflows within a defined period—usually monthly, quarterly, or annually.

Think of cash flow projection (also referred to as a cash flow forecast) as a financial crystal ball that allows you to peek into the future of your business’s cash movements. It involves mapping out the expected cash inflows (receivables) from sales, investments, and financing activities and the anticipated cash outflows (payables) for expenses, investments, and debt repayments.

It provides invaluable foresight into your business’s anticipated cash position, helping you plan for potential shortfalls, identify surplus funds, and make informed financial decisions.

Why Are Cash Flow Projections Important for Your Business?

Managing cash flow is a critical aspect of running a successful business. It can be the determining factor between flourishing and filing for Chapter 11 (aka bankruptcy ).

In fact, studies reveal that 30% of business failures stem from running out of money. To avoid such a fate, by understanding and predicting the inflow and outflow of cash, businesses can make informed decisions, plan effectively, and steer clear of potential financial disasters.

Step-by-Step Guide to Creating a Cash Flow Projection

Step 1: choose the type of projection model.

  • Determine the appropriate projection model based on your business needs and planning horizon.
  • Consider the following factors when choosing a projection model:
  • Short-term Projections: Covering a period of 3-12 months, these projections are suitable for immediate planning and monitoring.
  • Long-term Projections: Extending beyond 12 months, these projections provide insights for strategic decision-making and future planning.
  • Combination Approach: Use a combination of short-term and long-term projections to address both immediate and long-range goals.

Step 2: Gather Historical Data and Sales Information

  • Want to determine where you’re going? Take a look at where you’ve already been. Collect relevant historical financial data, including cash inflows and outflows from previous periods.
  • Analyze sales information, considering seasonality, customer payment patterns, and market trends.

Pro Tip: Finance teams often utilize accounting software to ingest a range of historical and transactional data. Read on to discover the business use cases of implementing a treasury management solution for optimal cash flow management .

Step 3: Project Cash Inflows

  • Estimate cash inflows based on sales forecasts, considering factors such as payment terms and collection periods.
  • Utilize historical data and market insights to refine your projections.

Step 4: Estimate Cash Outflows

  • Identify and categorize various cash outflows components, such as operating expenses, loan repayments, supplier payments, and taxes.
  • Use historical data and expense forecasts to estimate the timing and amount of cash outflows.

Pro Tip: By referencing the cash flow statement, you can identify the sources of cash inflows and outflows. Click here to learn more about analyzing projected cash flow statement.

Step 5: Calculate Opening and Closing Balances

  • Calculate the opening balance for each period, which represents the cash available at the beginning of the period.
  • Opening Balance = Previous Closing Balance
  • Calculate the closing balance by considering the opening balance, cash inflows, and cash outflows for the period.
  • Closing Balance = Opening Balance + Cash Inflows – Cash Outflows

Step 6: Account for Timing and Payment Terms

  • Consider the timing of cash inflows and outflows to create a realistic cash flow timeline.
  • Account for payment terms with customers and suppliers to align projections with cash movements.

Step 7: Calculate Net Cash Flow

  • Calculate the net cash flow for each period, which represents the difference between cash inflows and cash outflows.
  • Net Cash Flow = Cash Inflows – Cash Outflows

Pro Tip: Calculating the net cash flow for each period is vital for your business as it gives you a clear picture of your future cash position. Think of it as your future cash flow calculation.

Step 8: Build Contingency Plans

  • Incorporate contingency plans to mitigate unexpected events impacting cash flow, such as economic downturns or late payments.
  • Create buffers in your projections to handle unforeseen circumstances.

Step 9: Implement Rolling Forecasts

  • Embrace a rolling forecast approach, where you regularly update and refine your cash flow projections based on actual performance and changing circumstances.
  • Rolling forecasts provide a dynamic view of your cash flow, allowing for adjustments and increased accuracy.

Cash Flow Projection Example

Let’s take a sneak peek into the cash flow projection of Pizza Planet, a hypothetical firm. In March, they begin with an opening balance of $50,000 . This snapshot will show us how their finances evolved during the next 4 months.

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Here are 5 key takeaways from the above cash flow projection analysis for Pizza Planet:

  • Upsurge in Cash Flow from Receivables Collection (April):
  • Successful efforts in collecting outstanding customer payments result in a significant increase in cash flow.
  • Indicates effective accounts receivable management and timely collection processes.
  • Buffer Cash Addition (May and June):
  • The company proactively adds buffer cash to prepare for potential financial disruptions.
  • Demonstrates a prudent approach to financial planning and readiness for unexpected challenges.
  • Spike in Cash Outflow from Loan Payment (May):
  • A noticeable cash outflow increase is attributed to borrowed funds’ repayment.
  • Suggests a commitment to honoring loan obligations and maintaining a healthy financial standing.
  • Manageable Negative Net Cash Flow (May and June):
  • A negative net cash flow during these months is offset by positive net cash flow in other months.
  • Indicates the ability to handle short-term cash fluctuations and maintain overall financial stability.
  • Consistent Closing Balance Growth:
  • The closing balance exhibits a consistent and upward trend over the projection period.
  • Reflects effective cash flow management, where inflows cover outflows and support the growth of the closing cash position.

Overall, the cash flow projection portrays a healthy cash flow for Pizza Planet, highlighting their ability to collect receivables, plan for contingencies, manage loan obligations, resilience in managing short-term fluctuations, and steadily improve their cash position over time.

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6 Common Pitfalls to Avoid When Creating Cash Flow Projections

At HighRadius, we recently turned our research engine toward cash flow forecasting to shed light on the sources of projection failures. One of our significant findings was that most companies opt for unrealistic projections models that don’t mirror the actual workings of your finance force.

Cash flow projections are only as strong as the numbers behind them. No one can be completely certain months in advance if literal or figurative storm clouds are waiting for them on the horizon. Defining a realistic cash flow projection for your company is crucial to achieving more accurate results. Don’t let optimism cloud your key assumptions. Stick to the most likely numbers for your projections.

A 5% variance is acceptable, but exceeding this threshold warrants a closer look at your key assumptions. Identify any logical flaws that may compromise accuracy. Take note of these pitfall insights we’ve gathered from finance executives who have shared their experiences:

  • Sales Estimates:
  • Avoid overly generous sales forecasts that can undermine projection accuracy.
  • Maintain a realistic approach to sales projections to ensure reliable cash flow projections.
  • Accounts Receivable: 
  • Reflect the payment behavior of your customers accurately in projections, especially if they tend to pay on the last possible day despite a 30-day payment schedule.
  • Adjust the projection cycle to align with the actual payment patterns.
  • Accounts Payable:
  • Factor in annual and quarterly bills on the payables side of your projections.
  • Consider potential changes in tax rates if your business is expected to reach a new tax level.
  • Cyclical Trends:
  • Account for seasonal fluctuations and cyclical trends specific to your industry.
  • Analyze historical data to identify patterns and adjust projections accordingly to reflect these variations.
  • Contingencies and Unexpected Events:
  • Incorporate contingencies in your projections to prepare for unforeseen circumstances such as economic downturns, natural disasters, or changes in market conditions.
  • Build buffers to mitigate the impact of unexpected events on your cash flow.

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  • Scenario Planning:
  • Failing to create multiple scenarios can leave you unprepared for different business outcomes.
  • Develop projections for best-case, worst-case, and moderate scenarios to assess the impact of various circumstances on cash flow.

By addressing these pitfalls and adopting best practices shared by finance executives, you can create more reliable and effective cash flow projections for your business. Stay proactive and keep your projections aligned with the realities of your industry and market conditions.

How Automation Helps in Projecting Cash Flow?

Building a cash flow projection chart is just the first step; the real power lies in the insights it can provide. Cash flow projection is crucial, but let’s face it – the traditional process is resource-consuming and hampers productivity. Finance teams have no choice but to abandon it and let it gather dust for the remainder of a month. 

However, there’s a solution: a cash flow projection automation tool. 

Professionals in Controlling or Treasury understand this need for automation, but it requires an investment of time and money. Building a compelling business case is straightforward, especially for companies prioritizing cash reporting, forecasting, and leveraging the output for day-to-day cash management and investment planning.

Consider the following 3 business use cases shared by finance executives, highlighting the benefits that outweigh the initial investment:

Scalability and Adaptability:

Forecasting cash flow in spreadsheets is manageable in the early stages, but as your business grows, it becomes challenging and resource-intensive. Manual cash flow management struggles to keep up with the increasing transactions and customer portfolios.

Many businesses rely on one-off solutions that only temporarily patch up cash flow processes without considering the implications for the future. Your business needs an automation tool that can effortlessly scale with your business, accommodating evolving needs.

Moreover, such dependable partners often offer customization options, allowing you to tailor the cash flow projections to your specific business requirements and adapt to changing market dynamics.

Time Savings:

Consider a simple example of the time and effort involved in compiling a 13-week cash flow projection for stakeholders every week. The process typically includes

  • Capture cash flow data from banking and accounting platforms and classify transactions.
  • Create short-term forecasts using payables and receivables data.
  • Model budget and other business plans for medium-term forecasts.
  • Collect data from various business units, subsidiaries, and inventory levels.
  • Consolidate the data into a single cash flow projection.
  • Perform variance and sensitivity analysis.
  • Compile reporting with commentary.

This process alone can consume many hours each week. Let’s assume it takes six hours for a single resource and another six hours for other contributors, totaling 12 hours per week or 624 hours per year.

How to Build a 13-Week Cash Forecast (Excel Template)

Imagine the added time spent on data conversations, information requests, and follow-ups. Cash reporting can quickly become an ongoing, never-ending process.

By implementing a cash flow projection automation tool, you can say goodbye to tedious manual tasks such as logging in, downloading data, manipulating spreadsheets, and compiling reports. Automating these processes saves your team countless hours, allowing them to focus on strategic initiatives and high-value activities.

Accuracy and Efficiency:

When it comes to cash flow monitoring and projection, accuracy is paramount for effective risk management. However, manual data handling introduces the risk of human error, which can have significant financial implications for businesses. These challenges may include:

  • Inaccurate financial decision-making
  • Cash flow uncertainty
  • Increased financial risks
  • Impaired stakeholder confidence
  • Wasted resources and time
  • Compliance and reporting challenges
  • Inconsistent data processing

Automating cash flow projections mitigates these risks by ensuring accurate and reliable results. An automation tool’s consistent data processing, real-time integration, error detection, and data validation capabilities instil greater accuracy, reliability, and confidence in the projected cash flow figures.

For example, Harris , a leading national mechanical contractor, transformed their cash flow management by adopting an automation tool. They achieved up to 85% accuracy across forecasts for 900+ projects and gained multiple 360-view projection horizons, from 1-Day to 6-Months, updated daily. This improvement in accuracy allowed the team to focus on higher-value tasks, driving better outcomes.

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Cash Flow Projections with HighRadius

Managing cash flow projections today requires a host of tools to track data, usage, and historic revenue trends as seen above. Teams rely on spreadsheets, data warehouses, business intelligence tools, and analysts to compile and report the data.

HighRadius has consistently provided its customers with powerful AI and forecasting tools to support real-time visibility, historical tracking, and predictive insights so your teams can reap the benefits of automated cash flow management.

When your forecast is off, you can miss opportunities to invest in growth or undermine your credibility and investor confidence. An accurate forecast means predictable growth and increased shareholder confidence. 

At HighRadius, we would be delighted to discuss how we can bolster your business’s cash flow and treasury management needs. Request a demo today .

Learn more about the Future of Cash Flow Forecasting here .

Cash Flow Projection FAQs

How do you prepare a projected cash flow statement.

Steps to prepare a projected cash flow statement :

  • Analyze historical cash flows.
  • Estimate future sales and collections from customers.
  • Forecast expected payments to suppliers and vendors.
  • Consider changes in operating, investing, and financing activities.
  • Compile all these estimates into a projected cash flow statement for the desired period.

What is a 3-year projected cash flow statement?

A 3-year projected cash flow statement forecasts cash inflows and outflows for the next three years. It helps businesses assess their expected cash position and plan for future financial needs and opportunities.

What are the 4 key uses for a cash flow forecast?

  • Evaluate cash availability for operational expenses and investments.
  • Identify potential cash flow gaps or surpluses.
  • Support financial planning, budgeting, and decision-making.
  • Assist in securing financing or negotiating favorable terms with stakeholders.

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Cash Flow Plans: What it Means, How it Works, Example

what is cash flow in business plan

Investopedia / Matthew Collins

What Are Cash Flow Plans?

Cash flow plans, in insurance, are plans that allow policyholders to use their own cash flow to finance their insurance premiums. However, the term "cash flow" can apply to several other financial activities. In general, cash flow plans relate to documents a company puts together to track cash flow, both cash inflows and outflows, over a period. In that sense, cash flow plans can also refer to an insurance company's assessment of the company's cash flow, income streams, and expenses. Part of this plan will include how to coordinate the payment of insurance premiums and the payment of claims.

Key Takeaways

  • A cash flow plan can be viewed in an insurance context or a general context.
  • In the insurance context, a cash flow plan allows an entity to pay its premium in small intervals based on incoming cash flow. 
  • Insurance cash flow plans benefit both the policyholder and the insurance company based on the increased ability of the policyholder to make payments. 
  • In a general sense, a cash flow plan allows a company to plan its incoming and outgoing cash to ensure it can meet expenses. 
  • Cash flow activities include operating activities, investing activities, and financing activities. 

How Cash Flow Plans Work

Cash flow plans can provide financing for both policyholders and insurance companies by helping them make better use of their cash. Policyholders can earn more interest on cash reserves, and cash flow can even be generated by the policy itself, as commonly occurs with life insurance policies that have investing components. Insurers may get paid in installments, but their collection rate may go up because smaller, regular payments are more affordable.

Outside of the scope of insurance, a cash flow plan is a way by which a company can plan and manage the loss and gain of cash in order to ensure that the company is able to pay business-related expenses as they occur. Good cash flow management is key to ensuring any business runs smoothly. By matching the payment of expenses to projected incoming cash, they can use working capital more efficiently, by making payments as late as possible. Cash flow plans can help the business to earn interest on cash reserves , and maintain a liquidity cushion for unexpected expenses. They can also indicate whether operating cash flow is enough to make capital expenditures, or whether more capital will need to be raised.

Special Considerations

The types of cash flow activities that are factored into a cash flow plan are as follows: operating activities, investing activities, and financing activities. Operating activities can include the cash made by the sale of goods or purchase of merchandise. Investing activities include long-term investments, property and equipment, and the principal of loans made to other entities. Financing activities are considered cash activities related to noncurrent liabilities and owner’s equity, such as the principal amount of long-term debts, stock sales and purchases, and dividend payments. 

A solid cash flow plan is the best way to avoid having cash flow issues, which are often behind the early-demise of otherwise promising companies. 

Example of a Cash Flow Plan

Assume that Company Z is a start-up company that is in the practice of producing web and phone applications. Company Z expects that it will sell 40 applications a month at a price of $5,000 each and that it will be paying cash expense totaling around $50,000 in certain months, and around $100,000 in other months. Company Z also anticipates that it will need to buy $75,000 of equipment in December.

Company Z would start the process of formulating a cash flow plan in order to ensure that it is capable of meeting the financial demands of these business-related expenses as they occur. Without a solid cash flow plan, Company Z runs the risk of being unable to meet these financial demands and could be forced either to raise capital quickly—which is often an expensive process, fire employees, or even cease operation of the company. 

what is cash flow in business plan

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what is cash flow in business plan

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on March 29, 2023

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Table of contents, what is cash flow planning.

Cash flow planning refers to the process of creating a detailed budget and holistic financial plan to manage income, expenses, and savings. It involves analyzing cash inflows and outflows , identifying areas of overspending, and creating a plan to improve financial stability .

The purpose of cash flow planning is to help individuals, families, and businesses to manage their finances effectively and achieve their financial goals.

Importance of Cash Flow Planning

Cash flow planning is crucial for individuals, families, and businesses for various reasons. These include:

Dealing With Unanticipated Costs

Cash flow planning is essential for dealing with unanticipated costs, such as medical bills, car repairs, and home repairs.

With a cash flow plan, individuals and businesses can set aside a portion of their income to cover these unexpected expenses without having to rely on credit or loans.

Identifying Potential Cost Savings

Cash flow planning helps individuals and businesses to identify potential cost savings by analyzing their expenses and identifying areas where they can cut back.

By reducing unnecessary expenses, individuals and businesses can save money and improve their financial stability.

Preparing for the Future

Cash flow planning helps individuals and businesses to prepare for the future by setting financial goals and creating a plan to achieve them.

Whether it is saving for a down payment on a house, planning for retirement, or building an emergency fund, a cash flow plan can help individuals and businesses to achieve their financial goals.

Maintaining Relationships with Suppliers for Businesses

Cash flow planning is crucial for maintaining relationships with suppliers for businesses.

By managing cash flow effectively, businesses can pay their suppliers on time, which helps to build trust and maintain good relationships.

Managing Risk to Minimize Losses

Cash flow planning is important for managing risk to minimize losses. By analyzing cash inflows and outflows, individuals and businesses can identify potential risks and create a plan to mitigate them.

For example, businesses can create a contingency plan for a sudden drop in revenue, while individuals can set aside money for unexpected expenses.

Importance of Cash Flow Planning

Cash Flow Planning for Individuals

Cash flow planning is crucial for individuals who want to manage their finances effectively and achieve their financial goals. Here are some strategies for creating a cash flow plan for individuals:

Utilize the 50-30-20 Rule

The 50-30-20 rule is a popular budgeting strategy that involves dividing the income of an individual into three categories: necessities, wants, and savings.

Under this rule, 50% of the income should be allocated to necessities like rent/ mortgage , groceries, transportation, and internet/cell phone.

The 30% should go towards wants, which may include entertainment, clothes, eating out, and other non-essential expenses. Finally, the remaining 20% should be set aside for savings.

If followed consistently, the 50-30-20 rule can be an effective way to reach financial goals . However, it is important to note that the distribution of these categories may vary based on location and cost of living.

In areas with a high cost of living, for example, a larger portion of the budget may need to be allocated toward housing.

Reduce Your Expenses

Once a budget has been created and expenses have been tracked, it becomes easier to identify areas where money can be saved.

A good starting point is to review monthly bills, such as streaming services, internet plans, and grocery expenses, and look for ways to reduce or eliminate unnecessary expenses. It may also be beneficial to compare prices and look for the best deals to save money.

Automate Your Savings

Many individuals tend to wait until the end of the month to save any money they have left over, but often find that there is nothing left to save. However, a better approach is to pay yourself first.

By setting up automatic withdrawals to transfer funds directly into a high-interest savings account, individuals can ensure they are saving money each month. This is particularly effective when timed with payday, as the money will not be missed from their paycheck.

Improving cash flow is a process that requires time and planning. Individuals should consider their long-term goals, such as saving for retirement and create a plan to achieve those goals.

While it may seem like a daunting task, every step taken will bring them closer to their ultimate financial objectives.

Cash Flow Planning for Individuals

Cash Flow Planning for Businesses

Cash flow planning is essential for businesses, regardless of their size. Inefficient management of cash flow can lead to financial instability, debt accumulation, and the inability to pay bills or meet other financial obligations.

Therefore, businesses need to create a cash flow plan that takes into account all sources of income, expenses, and savings. Here are some tips and strategies for creating a cash flow plan for businesses.

Proactive Invoicing

Proactive invoicing is an essential strategy for businesses to manage their cash flow. It involves billing customers and clients in a timely manner and following up on overdue payments.

This can be achieved by setting up an automated invoicing system that sends reminders to customers about their outstanding balances. Furthermore, offering incentives for early payment can also help speed up the payment process.

Efficient Inventory Management

Efficient inventory management is critical to optimizing cash flow in businesses that sell products. Overstocking or understocking can lead to significant financial losses.

Therefore, businesses need to monitor inventory levels regularly and forecast future demand accurately. This can help ensure that they have the right amount of stock to meet customer demand while minimizing excess inventory.

Equipment Leasing

Leasing equipment instead of purchasing it outright can help businesses manage their cash flow. Equipment leasing enables businesses to use assets without having to pay for them upfront, which can help preserve cash reserves.

Additionally, leasing can also help businesses avoid the costs associated with equipment maintenance, repairs, and upgrades.

Borrowing Ahead

Borrowing ahead is a strategy that involves securing funding before a cash crunch occurs. This can help businesses prepare for unanticipated expenses, emergencies, or seasonal fluctuations in demand.

However, it is essential to carefully assess the terms and conditions of loans to ensure that the business can repay the debt without facing undue financial strain.

Business Operations Review

Reviewing business operations can help identify inefficiencies that drain cash reserves. Conducting a review of all business processes, systems, and practices can help businesses identify areas for improvement.

This can include renegotiating contracts with suppliers, optimizing staffing levels, and consolidating operations.

Payment and Collection Restructuring

Restructuring payment and collection processes can help businesses manage their cash flow more efficiently.

This can include offering discounts for early payments , negotiating extended payment terms with suppliers, and implementing electronic payment systems to speed up the collection process.

Money Monitoring

Monitoring cash flow is critical to managing business finances effectively. This involves regularly tracking income and expenses to identify potential problems early.

By monitoring cash flow, businesses can identify areas of overspending, reduce unnecessary costs, and improve overall financial performance.

Technology Utilization

Utilizing technology can help businesses manage their cash flow more effectively. Automated bookkeeping systems, expense-tracking software, and electronic payment systems can help streamline financial processes and reduce the risk of errors.

Additionally, cloud-based financial management tools can provide real-time visibility into cash flow, which can help businesses make informed financial decisions.

Loan Exploration

Exploring loan options can help businesses manage their cash flow during times of financial difficulty. However, it is essential to carefully evaluate the terms and conditions of loans to ensure that they align with the financial goals and capabilities of the business.

Businesses should also consider alternative financing options, such as lines of credit , factoring, or merchant cash advances.

Cash Flow Planning for Businesses

Cash Flow Planning for Insurance

Cash flow planning is an essential process for insurance policyholders. It can help individuals manage their premiums and expenses related to insurance policies effectively.

Insurance policies , including life , health, auto, and home insurance, require regular payments, which can put a strain on the finances of an individual.

By creating a cash flow plan, individuals can ensure that they have sufficient funds available to meet payment deadlines for their premiums. This can prevent late fees or lapsed policies, which can lead to financial losses in case of an unexpected event.

To create a cash flow plan for insurance, individuals can start by analyzing their expenses and income. They should identify the insurance premiums and due dates and factor them into their monthly budget.

Additionally, they can explore ways to reduce their insurance costs, such as bundling policies, increasing deductibles, or shopping around for better rates.

Cash Flow Planning & Budgeting

Cash flow planning and budgeting are two closely related concepts.

Budgeting refers to the process of creating a financial plan that outlines the income and expenses of an individual or business over a specific period. The budget acts as a roadmap for managing cash flow, and cash flow planning helps to execute the plan effectively.

The main difference between cash flow planning and budgeting is the time frame.

Budgeting usually covers a more extended period, such as a year, while cash flow planning is more short-term, covering a few months to a year.

Cash flow planning focuses on managing cash inflows and outflows to ensure that there is enough cash available to meet the budgeted expenses.

By combining cash flow planning with budgeting, individuals and businesses can create a comprehensive financial plan that covers both short-term and long-term goals.

They can identify areas where they can save money and prioritize expenses accordingly to achieve their financial objectives.

Final Thoughts

Cash flow planning is an essential process that can help individuals and businesses manage their finances effectively.

By creating a detailed cash flow plan, they can ensure that they have sufficient funds available to cover their expenses and achieve their financial goals.

To create an effective cash flow plan, individuals and businesses need to analyze their income and expenses, identify areas of overspending, and explore ways to reduce costs. They should also prepare for unexpected expenses and create a buffer to absorb financial shocks.

If you are struggling to manage your cash flow or need help creating a comprehensive financial plan, consider seeking the services of a financial advisor.

Cash flow planning requires discipline and commitment, but the benefits of financial stability and security make it a worthwhile effort. Start planning for a better financial future by getting in touch with a financial advisor .

Cash Flow Planning FAQs

What is cash flow planning.

Cash flow planning is the process of creating a detailed budget and financial plan to manage income, expenses, and savings. It involves analyzing cash inflows and outflows, identifying areas of overspending, and creating a plan to improve financial stability.

Why is cash flow planning important?

Cash flow planning is essential because it helps individuals and businesses manage their finances effectively. By creating a detailed cash flow plan, they can ensure that they have sufficient funds available to cover their expenses and achieve their financial goals.

What are the factors you need to consider during cash flow planning?

Factors to consider during cash flow planning include analyzing income and expenses, identifying areas of overspending, preparing for unexpected expenses, creating a buffer, and exploring ways to reduce costs.

What are some tips for managing cash flow?

Tips for managing cash flow include creating a budget, analyzing expenses, reducing unnecessary costs, automating savings, preparing for unexpected expenses, and maintaining good relationships with suppliers.

What is the purpose of cash flow planning?

Cash flow planning is important for individuals and businesses to manage their finances effectively. Factors such as income and expenses, fixed and variable costs, cash inflows and outflows must be assessed to ensure overall financial health. Anticipating changes and creating contingency plans is crucial, as is considering long-term financial goals like retirement savings or investing in a new venture. Seeking the guidance of a financial advisor can help create a comprehensive cash flow plan.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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Small Business Trends

What is cash flow and why is it important for small business.

What is Cash Flow and Why is it Important for Small Business?

Think of cash flow as the blood running through the arteries of your small business. You use it to do those important things that keeps everything moving like buying stock, covering expenses and paying staff.

Small Business Trends contacted several experts to get a complete overview of what cash flow is and why it’s so important to your enterprise.

What is Cash Flow?

Basically, this is one of the best bellwethers for your small business. It shows the money that your small business has in the pot after paying out all the different debts and draws on your money. Cash flow gives you a good idea if you’re in a position to expand.

What is Cash Flow and Why is it Important for Small Business?

Why Is It So Important?

Stefanie Ricchio, a CPA/CGA, Author and Professor, further defined cash flow and some of the economic rough patches that make paying attention to it so critical.

“Cash Flow or what is commonly referred to as Working Capital is the heart of any business,” she writes.  “Without it a business cannot survive.  Many small business owners make the mistake of spending without consideration for the future. For example, buying excess inventory that ties up cash in inventory versus having it readily available to meet short and long term obligations of the business.”

Small Business Deals

How does it impact small business loans.

She also notes that cash management is even more important when you consider how tight the banks are with small business loans and other money vehicles that can be used when cash runs short.

“Additionally, smaller businesses run the risk of losing employees, suppliers and facing interest and penalties as a result of poor cash management,” she writes adding that staying current on cash needs means balancing some of the other aspects of your business like tax payments, accounts receivable and inventory. That’s the best way to understand how much money you need in the system for each period.

“This must then be compared to the estimated cash receipts for the same period to determine whether or not the cash flow will be sufficient.”

Think of it as a balancing act of sorts.

What is Cash Flow and Why is it Important for Small Business?

How Do You Improve Your Cash Flow?

Of course, most small business owners want to know how to improve their cash flow and keep their business healthy . There’s a few good suggestions including leasing rather than buying equipment and even real estate. This is one of the best ways to make sure that you’ve got money for day-to-day operations because leasing allows you to pay in smaller chunks which boosts your cash flow.

Improving cash flow is a top priority for small business owners. Here are some effective strategies to boost cash flow:

  • Consider Leasing: Opt for leasing instead of purchasing equipment or real estate to reduce upfront costs and enhance cash flow.
  • Perform Credit Checks: Conduct credit checks on customers seeking credit to minimize the risk of late payments and cash flow disruptions.
  • Set Clear Payment Terms: Clearly define payment terms for customers before they make purchases to ensure timely payments.
  • Request Down Payments: Asking for down payments or deposits on capital purchases can alleviate the financial burden on your business.
  • Include Tax Payments: Incorporate all necessary tax payments in your cash flow projections to avoid surprises.
  • Keep Bookkeeping Simple: Utilize basic tools like Excel spreadsheets for cash flow management, ensuring you have a clear grasp of your financial numbers

To further enhance your cash flow, consider these additional strategies:

Utilize Technology for Efficiency

Embrace Financial Management Software: Leveraging technology can streamline your cash flow management. Financial management software offers tools for invoicing, bill payments, and real-time cash flow analysis. These platforms can automate many of the tasks associated with cash flow management, reducing the risk of human error and saving time.

Online Payment Solutions: Encourage customers to use online payment solutions. Offering multiple payment options can speed up the receipt of funds. Digital payments can be processed and deposited into your account more quickly than traditional methods, improving your cash flow.

Enhance Customer Relationships

Reward Prompt Payments: Implement a system to reward customers who pay their invoices early. Discounts or other incentives can motivate customers to settle their bills promptly, ensuring you have access to cash sooner.

Regular Communication: Maintain open lines of communication with your customers. Regular updates about new products, services, and special offers keep your business top-of-mind. Building strong relationships can lead to more consistent sales, which in turn, can lead to a more predictable cash flow.

Optimize Inventory Management

Just-In-Time (JIT) Inventory: Adopt a JIT inventory system to reduce the cash tied up in stock. By keeping inventory levels closely aligned with demand, you can minimize excess stock and free up cash that would otherwise be tied up in unsold goods.

Regular Inventory Audits: Conduct regular inventory audits to identify slow-moving or obsolete items. Offering these items at a discount can help clear out inventory and bring in cash more quickly.

Diversify Revenue Streams

Explore New Markets: Diversifying your customer base can provide additional sources of income and reduce dependence on a single market segment. Exploring new markets or expanding your product line can open up new revenue streams and improve cash flow.

Offer Subscription Services: If applicable, consider offering products or services on a subscription basis. This can provide a steady, predictable flow of income that can help smooth out cash flow fluctuations.

Strengthen Supplier Relationships

Negotiate Better Terms: Work closely with your suppliers to negotiate better payment terms. Longer payment terms give you more flexibility to manage your cash flow without compromising your relationship with suppliers.

Consolidate Suppliers: Consider consolidating your purchases with fewer suppliers to leverage volume discounts and negotiate more favorable terms. This strategy can reduce costs and improve cash flow.

Improving cash flow is crucial for the health and sustainability of your small business. By adopting a comprehensive approach that includes leveraging technology, enhancing customer relationships, optimizing inventory management, diversifying revenue streams, and strengthening supplier relationships, you can create a more resilient and flexible financial foundation. Remember, effective cash flow management is not just about monitoring the money that flows in and out of your business; it’s about making strategic decisions that ensure your business remains vibrant and competitive in the long term.

 How Do Credit Checks Help?

If your customers pay in cash you can bypass this step. Otherwise it’s a good idea to do credit checks on all the clients who want credit to purchase your goods and services. Every small business hankers to make that extra sale, but late payments always take a dent out of your cash flow in the end.

Charlie Whyman is a Business Development Strategist and Marketing Trainer. She added that staying on top of things was also critical by “ maintaining control on your payment terms and be clear with your customers what they are before they purchase.”

What is Cash Flow and Why is it Important for Small Business?

Why are Down Payments Important?

She also says that asking for a down payment or a deposit on certain kinds of capital purchases is a good idea. That way you are not fronting the cost yourself. She also says that small businesses need to include all the necessary tax payments in their cash flows.

She also suggests bookkeeping remain simple.

“You can easily manage your cash flow using an excel spreadsheet, you don’t need fancy software to do it unless you have a lot of cash coming in and going out of the business,” she writes. “The more control over the numbers in your business, the better you will be set up for growth”.

Frequently Asked Questions

What is cash flow, and why does it matter.

Cash flow is the heartbeat of your small business, reflecting the movement of money in and out. It’s essential because it mirrors your financial health and is the lifeblood that sustains your operations. Think of it as the vital fluid that keeps your business’s heart pumping, allowing you to cover expenses, pay employees, and invest in growth.

How Does Cash Flow Impact Small Business Loans?

Cash flow significantly influences your ability to secure small business loans. Lenders assess your cash flow to determine your capacity to repay. A robust cash flow history can boost your chances of loan approval and potentially secure more favorable terms. Conversely, a weak cash flow may lead to loan denials or higher interest rates.

What Are the Risks of Neglecting Cash Flow Management?

Neglecting cash flow management can have dire consequences. It can result in employee dissatisfaction or loss as you struggle to meet payroll. Suppliers may withhold goods or services, affecting your operations. Furthermore, late payments can lead to penalties and interest charges, further straining your finances. Ultimately, poor cash flow management can threaten the long-term viability of your business.

What is Cash Flow and Why is it Important for Small Business?

How Can I Balance Cash Flow and Business Growth?

Balancing cash flow and growth is akin to walking a tightrope. While effective cash flow management is crucial for stability, you can’t stifle growth. Surplus cash can be strategically invested in expansion and opportunities to ensure your business thrives while maintaining a healthy cash flow.

Is Financial Literacy Important for Cash Flow Management?

Yes, financial literacy is paramount. Understanding concepts like cash flow forecasting, financial statements, and financial ratios empowers you to make informed decisions about your business’s financial health. Financial literacy provides you with the toolkit needed to navigate complex financial terrain.

Why Should I Seek Professional Advice for Cash Flow Management?

Professional advice from financial experts, accountants, or business advisors can provide personalized guidance and invaluable insights into optimizing your cash flow. They can help you implement best practices, identify potential pitfalls, and devise strategies tailored to your unique business needs. This expertise can be a game-changer for your business’s financial success.

How Do I Create a Cash Flow Forecast for My Business?

Creating a cash flow forecast involves estimating future inflows and outflows of cash. It’s a critical tool for proactive financial management. To build an accurate forecast, use historical data, market trends, and realistic assumptions. Update your forecast regularly to adapt to changing circumstances and ensure it remains a reliable financial compass.

What Role Does Working Capital Play in Cash Flow Management?

Working capital, the difference between current assets and current liabilities, plays a pivotal role in cash flow management. Efficient working capital management ensures you have funds available to cover short-term obligations. Striking the right balance between accounts receivable, accounts payable, and inventory is crucial for maintaining a healthy cash flow.

What Are the Key Components of Effective Cash Flow Management?

Effective cash flow management encompasses several key components:

  • Monitoring: Regularly monitor cash flow statements to identify trends and potential issues.
  • Expense Control: Scrutinize and control expenses to ensure they align with your business’s financial goals.
  • Contingency Planning: Develop a contingency plan to address unexpected disruptions to your cash flow, such as economic downturns or unexpected expenses.
  • Strategic Investment: Invest surplus cash strategically to drive growth and seize opportunities.
  • Financial Forecasting: Engage in accurate financial forecasting to anticipate cash flow needs and make informed decisions.

Conclusion: Navigating the Cash Flow Journey for Small Businesses

As we conclude, let’s recap the key takeaways:

Cash Flow as the Lifeblood: Cash flow is the lifeblood of your business, akin to the circulation of blood in your body’s veins. It keeps your operations running, ensures timely payments, and fuels your growth ambitions.

Leveraging Cash Flow for Loans: A healthy cash flow history can enhance your eligibility for small business loans. Lenders assess your cash flow to gauge your ability to repay, making it a crucial factor in securing financing with favorable terms.

Risks of Neglecting Cash Flow: Neglecting cash flow management can lead to employee dissatisfaction, strained supplier relationships, and financial penalties. In extreme cases, it can threaten the survival of your business.

Practical Strategies for Improvement: Improving cash flow requires a multifaceted approach, including leasing instead of buying, conducting credit checks, setting clear payment terms, requesting down payments, including tax payments in projections, and simplifying bookkeeping.

Balancing Cash Flow and Growth: Balancing cash flow and growth is a delicate act. Use surplus cash strategically to invest in expansion and opportunities without compromising your financial stability.

Importance of Financial Literacy: Financial literacy equips you with the knowledge needed to navigate cash flow management effectively. Understanding key financial concepts, ratios, and forecasting is essential for informed decision-making.

Seeking Professional Advice: Seeking professional advice from financial experts, accountants, or business advisors can provide personalized guidance and insights tailored to your business needs. Their expertise can be invaluable for optimizing your cash flow.

Creating a Cash Flow Forecast: A cash flow forecast is a vital tool for proactive financial management. It involves estimating future cash inflows and outflows based on historical data, market trends, and realistic assumptions. Regular updates are crucial for accuracy.

The Role of Working Capital: Efficient working capital management ensures you have funds available to meet short-term obligations. Striking the right balance between accounts receivable, accounts payable, and inventory is essential for maintaining a healthy cash flow.

Key Components of Effective Cash Flow Management: Effective cash flow management involves continuous monitoring, expense control, contingency planning, strategic investment, and accurate financial forecasting.

In conclusion, managing cash flow is an ongoing journey that requires vigilance and proactive financial stewardship. By applying the strategies and insights outlined in this FAQ guide, you can strengthen your business’s financial health, ensure its sustainability, and position it for growth and success in the ever-changing business landscape. Remember that a robust cash flow isn’t just a financial metric; it’s the life force that empowers your small business to thrive.

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Financial Policies

Cash flow indicates how well a business is performing. At the end of the day, it is not about your projected money but the actual money that you are holding.

Great article… the old maxim that small businesses fail for 3 reasons… cash flow, cash flow and cash flow is still a reality and SMBs need help to manage their cash. [Edited by editor]

I think that the application of modern cash flow management tools will help businesses of all sizes to keep track of their income and spendings more efficiently. For SMBs, sгch software doesn’t have to be fancy, as Charlie Whyman mentioned in the article, but should provide users with the basic features needed to get valuable analytics and a possibility to plan further business development.

These tools help to automate routine tasks and calculations, thus decreasing the number of human errors and providing a more accurate analysis of the business state. Every small business has an opportunity to grow if it manages its cash flows wisely.

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Sample Furniture Store Business Plan

Growthink.com Furniture Store Business Plan Template

Writing a business plan is a crucial step in starting a furniture store. Not only does it provide structure and guidance for the future, but it also helps to create funding opportunities and attract potential investors. For aspiring furniture store owners, having access to a sample furniture store business plan can be especially helpful in providing direction and gaining insight into how to draft their own furniture store business plan.

Download our Ultimate Furniture Store Business Plan Template

Having a thorough business plan in place is critical for any successful furniture store venture. It will serve as the foundation for your operations, setting out the goals and objectives that will help guide your decisions and actions. A well-written business plan can give you clarity on realistic financial projections and help you secure financing from lenders or investors. A furniture store business plan example can be a great resource to draw upon when creating your own plan, making sure that all the key components are included in your document.

The furniture store business plan sample below will give you an idea of what one should look like. It is not as comprehensive and successful in raising capital for your furniture store as Growthink’s Ultimate Furniture Store Business Plan Template , but it can help you write a furniture store business plan of your own.

Example – HomeElegance Furnishings

Table of contents, executive summary, company overview, industry analysis, customer analysis, competitive analysis, marketing plan, operations plan, management team, financial plan.

Welcome to HomeElegance Furnishings, our newly opened furniture store located in the heart of Baltimore, MD. We are thrilled to serve our community by offering high-quality, aesthetically pleasing, and functional furniture that caters to the discerning tastes of Baltimore residents. With a carefully curated product range including sofas, dining sets, bedroom furniture, office setups, and exquisite accent pieces, we’re committed to filling the market gap for superior home decor. Our store is positioned to be the go-to destination for all furnishing needs, providing a unique shopping experience with the help of our friendly staff. As a local business, we are proud to elevate the standard of living spaces in our area, making homes more elegant one piece of furniture at a time.

Our unique position in the market is attributed to several key factors that set us apart from the competition. With invaluable experience from our founder’s previous successful furniture store, we have a deep understanding of the business. Our commitment to producing furniture that exceeds expectations in quality, uniqueness, and functionality is at the core of our success. Since our launch on January 1, 2024, we’ve achieved significant milestones including developing a distinctive logo, securing a prime location for high visibility, and carefully selecting our brand name. These accomplishments lay the groundwork for our future growth and success, ensuring HomeElegance Furnishings becomes a leader in the Baltimore furniture market.

The Furniture Store industry in the United States, currently valued at over $100 billion, is experiencing steady growth due to consumers’ increasing interest in enhancing their living spaces. A notable trend is the shift towards online furniture shopping, providing convenience and broader selection for consumers. Additionally, the demand for sustainable and eco-friendly furniture is rising, as customers become more environmentally conscious. HomeElegance Furnishings is well-positioned to capitalize on these trends with our online presence and selection of eco-friendly options, setting us apart in the competitive landscape and appealing to a broader range of customers.

Our target customers include Baltimore residents seeking premium furniture that combines quality, design, and durability. We aim to serve discerning homeowners, interior designers, and real estate agents with our curated selection of elegant furniture. Additionally, we cater to young professionals moving into their first home or apartment, offering contemporary pieces that fit their budget and lifestyle. Our understanding of these customer segments enables us to tailor our offerings effectively, ensuring satisfaction and loyalty among our clients.

Key competitors in our market include Second Chance, specializing in reclaimed furniture, Urban Interiors with a focus on modern designs, and Sofas Etc., known for their extensive seating options. Our competitive advantages lie in our commitment to quality, innovation, and customer-centric design. We offer unique and functional furniture pieces that not only meet but exceed our customers’ expectations. Our ability to create customized solutions and provide exceptional customer service further distinguishes HomeElegance Furnishings from our competitors, ensuring we remain a preferred choice for furniture in Baltimore.

HomeElegance Furnishings boasts an extensive product line that emphasizes quality, style, and comfort, aimed at transforming living spaces into elegant havens. Our pricing strategy ensures a wide range of options for every budget, enhancing customer satisfaction. Our promotional strategy focuses on a strong online presence, leveraging SEO, social media engagement, and email marketing to attract and retain customers. Additionally, local advertising and in-store events will complement our online efforts, creating a comprehensive marketing approach. Implementing a loyalty program and utilizing customer feedback will further cement our relationship with our clients, driving growth and establishing our brand in the market.

Key operational processes include inventory management, exceptional customer service, effective sales strategies, and maintaining a visually appealing store. We will also focus on smooth order fulfillment, targeted marketing campaigns, diligent financial management, and strong supplier relations. Our staff will be well-trained to ensure high productivity and morale. Compliance with safety standards and regulations will be a priority to ensure a safe shopping experience. Upcoming milestones include securing a prime location, acquiring necessary permits, launching our store, and reaching our revenue goals within the first 12 to 18 months. These efforts will ensure the successful operation and growth of HomeElegance Furnishings.

Under the leadership of Madison Nelson, our President, HomeElegance Furnishings is poised for success. Madison’s extensive experience and successful track record in the furniture industry provide the strategic vision and commitment to excellence necessary to guide our company. Her leadership will be instrumental in achieving our long-term goals and ensuring that HomeElegance Furnishings becomes a leading name in the furniture market.

Welcome to HomeElegance Furnishings, a new furniture store that has recently opened its doors to serve the residents of Baltimore, MD. As a local business, we’re proud to offer a unique shopping experience catered to the discerning tastes of our community. Recognizing the gap in the market for high-quality furniture, we’re here to fill that void and elevate the standard of home decor in our area.

At HomeElegance Furnishings, our product range is carefully curated to meet the diverse needs of our customers. We offer a wide selection of sofas and couches, dining sets, bedroom furniture, office setups, and exquisite accent pieces to complement any space. Our commitment to quality and design ensures that each piece is not only aesthetically pleasing but also functional and durable, making our store the go-to destination for all your furnishing needs.

Located in the heart of Baltimore, MD, HomeElegance Furnishings is ideally positioned to serve our community. Our store is easily accessible, providing a convenient shopping experience for customers in and around Baltimore. Whether you’re looking for that perfect sofa to complete your living room or a dining set that speaks to your style, our doors are open, and our friendly staff is here to assist you.

HomeElegance Furnishings is uniquely positioned for success, thanks to a combination of factors. Our founder brings invaluable experience from successfully running a previous furniture store, ensuring we understand the ins and outs of the business. Moreover, we pride ourselves on crafting furniture that stands out from the competition in terms of quality, uniqueness, and functionality. This commitment to excellence is what we believe will set us apart and secure our place as a leader in the local market.

Since our establishment on January 1, 2024, as a Sole Proprietorship, we have hit several key milestones that mark the beginning of our journey. We’ve developed a distinctive logo that represents our brand’s ethos, carefully chosen our company name to reflect our commitment to elegance in home furnishing, and secured a prime location that promises high foot traffic and visibility. These accomplishments lay the foundation for our future growth and success in serving the Baltimore community.

The Furniture Store industry in the United States is a significant market with a current size of over $100 billion. This industry includes a wide range of retailers selling furniture for homes, offices, and outdoor spaces. With an increasing number of consumers investing in home decor and furniture to enhance their living spaces, the Furniture Store industry is expected to experience steady growth in the coming years.

One of the trends in the Furniture Store industry is the rising demand for online furniture shopping. With the convenience of browsing and purchasing furniture from the comfort of their own homes, more consumers are turning to online retailers for their furniture needs. This trend bodes well for HomeElegance Furnishings, as they can leverage their online presence to reach a wider customer base beyond Baltimore, MD.

Additionally, there is a growing trend towards sustainable and eco-friendly furniture options in the Furniture Store industry. Consumers are becoming more conscious of the environmental impact of their purchases and are seeking furniture made from sustainable materials. HomeElegance Furnishings can capitalize on this trend by offering a selection of eco-friendly furniture options, attracting environmentally-conscious customers and setting themselves apart in the market.

Below is a description of our target customers and their core needs.

Target Customers

HomeElegance Furnishings will target local residents in Baltimore who are in the market for premium furniture that enhances their living spaces. This customer segment is likely to value quality and design, seeking pieces that reflect their personal style and offer lasting durability. The store will tailor its offerings to meet the aesthetic and functional needs of these individuals, ensuring a curated selection that appeals to discerning homeowners.

Aside from local residents, HomeElegance Furnishings will also cater to interior designers and real estate agents looking for high-quality furnishings for their projects and listings. This customer segment will appreciate the store’s range of elegant and sophisticated furniture options that can help elevate any space. The store will provide professional consultation services to assist these customers in selecting the perfect pieces that meet their specific project requirements.

Lastly, HomeElegance Furnishings will target young professionals moving into their first home or apartment in Baltimore. This group is interested in modern, stylish furniture that fits their budget and lifestyle. The store will offer a variety of contemporary pieces that are both functional and fashionable, making it easier for young professionals to create a comfortable and stylish living environment.

Customer Needs

HomeElegance Furnishings caters to the discerning tastes of Baltimore residents who demand high-quality furniture for their living spaces. Customers expect durable, stylish, and comfortable pieces that can elevate the aesthetic of their homes. This store meets these expectations by curating a selection of furniture that combines both form and function, ensuring each piece not only looks good but also stands the test of time.

In addition to quality, consumers seek a personalized shopping experience where their unique needs and preferences are understood and respected. HomeElegance Furnishings provides expert guidance and bespoke services, allowing customers to find or customize furniture that perfectly fits their space and style. This level of service ensures that every purchase is not just a transaction but a step towards creating a dream home.

Moreover, convenience and reliability are paramount for furniture shoppers. HomeElegance Furnishings understands this and offers seamless purchase processes, from browsing to delivery. Customers can trust in an efficient, hassle-free experience that respects their time and investment. By addressing these core needs, HomeElegance Furnishings positions itself as a go-to destination for quality, service, and convenience in the Baltimore furniture market.

HomeElegance Furnishings’s competitors include the following companies:

Second Chance is a unique entity in the Baltimore area that specializes in the sale of reclaimed, refurbished, and repurposed furniture pieces. Their product range extends from vintage and antique furniture to home decor and architectural salvage. Price points at Second Chance are variable, appealing to both budget-conscious consumers and those looking for unique, higher-end items. The company generates revenue through direct sales and special projects that involve restoration or customization of pieces. Second Chance operates from a single, large warehouse facility in Baltimore, making it easily accessible to local customers. Their customer segment is quite broad, including eco-conscious shoppers, interior designers, and homeowners seeking unique pieces for their spaces. A key strength is their sustainable business model and the uniqueness of their inventory. A potential weakness is the unpredictability of inventory, which can vary greatly in style and quantity.

Urban Interiors offers a contemporary approach to furniture retail, focusing on modern, sleek designs suited to urban living spaces. They provide a wide range of furniture and home accessories, including sofas, dining sets, beds, and lighting fixtures. Price points at Urban Interiors tend to be mid-range to high-end, catering to customers looking for quality and design. The company boasts significant revenue from its well-positioned store in Baltimore and an online platform that extends its reach beyond the local area. Urban Interiors targets a customer segment that values aesthetics and modern design, often appealing to young professionals and modern families. Its key strengths include a strong brand identity and an extensive online presence. However, a potential weakness is its focus on a specific design aesthetic, which may not appeal to all customers.

Sofas Etc. is specialized in providing a wide range of seating options, including sofas, recliners, and sectionals, catering to a variety of tastes and budgets. Their products range from budget-friendly pieces to more luxurious, custom-designed options. Price points vary accordingly, allowing them to attract a diverse customer base. Sofas Etc. generates revenue through both its showroom sales and a robust online presence, which enables them to serve customers beyond the Baltimore area. They operate two locations within Maryland, making their products accessible to a wide geographic segment. The customer segments they serve include budget shoppers, families, and individuals looking for custom furniture solutions. A key strength of Sofas Etc. is their focus on customer service and customization options. However, their specialization in seating could be seen as a weakness, as it limits the range of products they offer compared to more comprehensive furniture stores.

Competitive Advantages

At HomeElegance Furnishings, we pride ourselves on crafting furniture that stands out in the crowded market of home decor. Our competitive edge lies in our ability to create products that are not only superior in quality but also unparalleled in uniqueness and functionality. We understand the evolving needs of modern living spaces, which drives our commitment to innovation. Our design team constantly explores new materials and techniques to ensure that our furniture is not just a piece of art but also a practical addition to your home. This focus on quality and innovation enables us to offer furniture that not only meets but exceeds our customers’ expectations, setting us apart from the competition.

Furthermore, our deep understanding of the aesthetic and functional needs of our customers allows us to curate a collection that is both diverse and distinctive. We believe that every piece of furniture should reflect the personality and lifestyle of its owner, which is why we offer customized solutions tailored to individual preferences. This level of personalization, combined with our commitment to customer service, ensures a shopping experience that is as unique as our furniture. By choosing HomeElegance Furnishings, customers gain access to a world of elegance, creativity, and innovation that enriches their living spaces and enhances their quality of life.

Our marketing plan, included below, details our products/services, pricing and promotions plan.

Products and Services

HomeElegance Furnishings offers an extensive array of furniture that caters to the varied needs and preferences of its customers. With an emphasis on quality, style, and comfort, the store ensures that each piece not only enhances the aesthetic appeal of your space but also provides unparalleled comfort and utility. From plush sofas and couches to elegant dining sets, sophisticated bedroom collections, functional office furniture, and charming accent pieces, HomeElegance Furnishings is poised to transform your living spaces into havens of elegance and comfort.

For those looking to revamp their living rooms, the store presents a wide selection of sofas and couches. Customers can expect to find everything from traditional designs to contemporary and minimalist styles, catering to various tastes and room layouts. The average selling price for these plush seating options ranges from $500 to $2,500, ensuring there’s something for every budget without compromising on quality or design.

Dining sets are another forte at HomeElegance Furnishings. Whether you’re in the market for a cozy table for two or a sprawling set to accommodate large family gatherings, there’s an option for you. Crafted from premium materials and available in a range of finishes, these dining sets promise durability and style. Prices for dining sets start at around $800 and can go up to $3,000, reflecting the diversity in design and materials.

The bedroom is your personal sanctuary, and HomeElegance Furnishings understands the importance of creating a space that reflects your style and meets your comfort needs. The bedroom furniture collection includes beds, dressers, nightstands, and more, with prices typically ranging from $400 for individual pieces to $5,000 for luxurious, high-end sets. This range ensures that you can furnish your entire bedroom in a cohesive style that suits your budget.

For the home office or professional workspace, the store offers a variety of office furniture that combines functionality with aesthetic appeal. From ergonomic chairs that ensure comfort during long working hours to desks that cater to various spatial requirements, HomeElegance Furnishings helps you create a productive and stylish workspace. Office furniture items are priced from $150 for chairs to around $1,000 for larger desks and storage solutions.

Accent pieces at HomeElegance Furnishings add the finishing touches to any room. These pieces, which include lamps, rugs, artwork, and more, help to personalize and complete the look of your space. With prices ranging from $50 to $500, adding these unique touches to your home is both accessible and affordable.

In summary, HomeElegance Furnishings offers a comprehensive range of furniture and home décor items that cater to a wide variety of tastes, needs, and budgets. With a commitment to quality, style, and customer satisfaction, the store is set to become a go-to destination for those looking to enhance the beauty and functionality of their living spaces.

Promotions Plan

HomeElegance Furnishings utilizes a comprehensive promotional strategy to attract customers in Baltimore, MD. This strategy encompasses a variety of methods, focusing on online marketing as a cornerstone. Through a dynamic online presence, the store ensures that potential customers find them easily and receive a compelling introduction to their offerings.

Online marketing starts with a user-friendly, visually appealing website that showcases the wide range of furniture available. The website acts as a digital showroom, providing detailed information on products, including high-quality images, descriptions, pricing, and customer reviews. To enhance the online experience, HomeElegance Furnishings will implement SEO strategies to improve search engine rankings, making it easier for customers to discover them when searching for furniture stores in Baltimore.

Social media platforms are another vital component of their online marketing efforts. By actively engaging on platforms like Instagram, Facebook, and Pinterest, HomeElegance Furnishings will connect with customers by sharing the latest trends, new arrivals, and special promotions. This engagement helps to build a community around the brand, encouraging interaction and feedback.

Email marketing campaigns are tailored to keep subscribers informed about upcoming sales, exclusive offers, and new collections. This direct form of communication fosters a personal connection with customers, encouraging repeat business and word-of-mouth referrals.

In addition to online marketing, HomeElegance Furnishings will explore local advertising in Baltimore. Participating in community events, sponsoring local sports teams, or partnering with other businesses for joint promotions are effective ways to increase visibility and attract local customers. Furthermore, in-store events, such as design workshops or product launch parties, will provide unique experiences that draw people into the store, allowing them to explore the furniture collections firsthand.

Implementing a loyalty program is another tactic that will benefit HomeElegance Furnishings. By rewarding repeat customers with discounts, early access to sales, or exclusive products, the store fosters a sense of loyalty and appreciation among its customer base. This program not only encourages repeat business but also turns satisfied customers into brand ambassadors who share their positive experiences with others.

Finally, HomeElegance Furnishings will leverage customer feedback and testimonials in their promotional efforts. Showcasing real customer experiences and stories on the website and social media platforms will build trust with potential customers and provide valuable social proof of the quality and service the store offers.

By employing these diverse promotional methods and tactics, HomeElegance Furnishings expects to establish a strong market presence in Baltimore, attract a steady stream of customers, and build a reputation for quality, style, and exceptional service.

Our Operations Plan details:

  • The key day-to-day processes that our business performs to serve our customers
  • The key business milestones that our company expects to accomplish as we grow

Key Operational Processes

To ensure the success of HomeElegance Furnishings, there are several key day-to-day operational processes that we will perform.

  • Inventory Management: We will maintain an accurate inventory system to track stock levels, re-order products, and manage supplier relationships. This includes conducting regular inventory audits and using software to predict inventory needs.
  • Customer Service: We will provide exceptional customer service by training staff on product knowledge, handling inquiries promptly, and resolving issues efficiently. This involves having a dedicated customer service team available through multiple channels, such as phone, email, and social media.
  • Sales Management: We will employ effective sales strategies, including upselling and cross-selling, to enhance customer purchases. Sales staff will be trained to understand customer needs and recommend suitable products.
  • Store Presentation and Merchandising: We will ensure the store is visually appealing and products are well-displayed to attract customers. This includes regular updates to store layout based on seasonality and trends.
  • Order Fulfillment: We will manage a smooth order fulfillment process, from the point of sale to delivery. This includes efficient processing of sales transactions, arranging delivery or pickup options, and ensuring orders are fulfilled accurately and timely.
  • Marketing and Promotions: We will execute targeted marketing campaigns and promotions to attract new customers and retain existing ones. This involves leveraging social media, email marketing, and local advertising.
  • Financial Management: We will conduct daily financial tasks, including processing payments, managing cash flow, and preparing financial reports. This ensures the business remains profitable and can make informed decisions.
  • Supplier Relations: We will maintain strong relationships with suppliers to ensure timely procurement of high-quality products. This involves negotiating favorable terms and regularly communicating with suppliers to address any issues.
  • Staff Management: We will oversee staff scheduling, training, and performance evaluations to ensure high productivity and morale. This includes providing regular feedback and creating a positive work environment.
  • Compliance and Safety: We will adhere to all local regulations and safety standards to ensure a safe shopping and work environment. This includes regular safety drills, equipment checks, and updating policies as needed.
  • Technology and Systems Management: We will utilize technology to improve operational efficiency, such as POS systems for sales transactions, inventory management software, and customer relationship management (CRM) systems.

HomeElegance Furnishings expects to complete the following milestones in the coming months in order to ensure its success:

  • Secure a Prime Location: Find and secure a lease for a retail space in a high-traffic area of Baltimore, MD, that aligns with our target market’s demographics and shopping habits.
  • Acquire Necessary Permits and Licenses: Complete all local, state, and federal requirements for operating a retail furniture store, including sales tax permits, business operation licenses, and any specific permits required for furniture sales.
  • Build Out and Furnish Store: Design and execute a store layout that maximizes the shopping experience, showcasing our furniture in appealing settings that highlight quality and design. This includes installing proper lighting, display units, and signage.
  • Inventory Acquisition: Establish relationships with furniture manufacturers and wholesalers to curate a selection of products that meet the quality and style expectations of our target customers. Ensure a diverse inventory that appeals to different tastes and budgets.
  • Implement an Omni-channel Sales Strategy: Develop an online presence through an e-commerce website to complement our physical store, enabling customers to browse and purchase products online. Integrate systems for inventory management across both channels.
  • Launch Our Furniture Store: Execute a grand opening event to generate buzz and attract initial customers. Utilize local advertising, social media marketing, and promotional offers to drive traffic to the store and website.
  • Hire and Train Staff: Recruit employees who are passionate about home decor and customer service. Provide comprehensive training on product knowledge, sales techniques, and customer service best practices to ensure a high-quality shopping experience.
  • Establish a Customer Loyalty Program: Develop a program that rewards repeat customers with discounts, early access to new products, or other incentives to encourage repeat business and word-of-mouth referrals.
  • Reach $15,000/Month in Revenue: Implement aggressive sales and marketing strategies to steadily increase customer base and sales volume, with the goal of achieving $15,000 in monthly revenue within the first 12 to 18 months.
  • Evaluate and Expand Product Offerings: Regularly review sales data, customer feedback, and market trends to adjust our inventory, introducing new products or phasing out less popular items, ensuring our offerings remain competitive and appealing to our target market.

HomeElegance Furnishings management team, which includes the following members, has the experience and expertise to successfully execute on our business plan:

Madison Nelson, President

Madison Nelson, President of HomeElegance Furnishings, brings a wealth of experience and a proven track record of success to the team. Madison’s background as a successful furniture store owner provides a solid foundation for understanding the intricacies of the furniture business. Her leadership experience, combined with her firsthand knowledge of the industry’s challenges and opportunities, positions her excellently to guide HomeElegance Furnishings towards achieving its long-term goals. Madison’s strategic vision and commitment to excellence are vital assets that will undoubtedly contribute to the company’s success and growth.

To achieve our growth goals, HomeElegance Furnishings requires $192,000 in funding. This investment will be allocated towards capital investments such as location buildout, furniture, equipment, and computers, as well as non-capital investments including working capital, initial rent, staff salaries, marketing, supplies, and insurance. These funds are critical for establishing our operations, securing our market position, and ensuring long-term profitability and success.

Financial Statements

Balance sheet.

[insert balance sheet]

Income Statement

[insert income statement]

Cash Flow Statement

[insert cash flow statement]

Furniture Store Business Plan Example PDF

Download our Furniture Store Business Plan PDF here. This is a free furniture store business plan example to help you get started on your own furniture store plan.  

How to Finish Your Furniture Store Business Plan in 1 Day!

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With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!

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  1. How to Create a Cash Flow Forecast and Statement

    Tim Berry 10 min. read Updated October 27, 2023 Download Now: Free Cash Flow Forecast Template A good cash flow forecast might be the most important single piece of a business plan. All the strategy, tactics, and ongoing business activities mean nothing if there isn't enough money to pay the bills.

  2. Cash Flow: What It Is, How It Works, and How to Analyze It

    Cash flow is the net cash and cash equivalents transferred in and out of a company. Cash received represents inflows, while money spent represents outflows. A company creates value for...

  3. Cash Flow Explained

    Cash flow is measured by comparing how much money flows into a business during a certain period to how much money flows out of that business during that period. You usually measure cash flow over a month or a quarter. How to calculate cash flow The simplest formula for calculating cash flow is: CASH RECEIVED - CASH SPENT = NET CASH FLOW

  4. Cash Flow: Definition, Uses and How to Calculate

    Cash flow is a measure of the money moving in and out of a business. Cash flow represents revenue received — or inflows — and expenses spent, or outflows. The total net balance over a specific ...

  5. Cash Flow Statement: Explanation and Example

    A cash flow statement tells you how much cash is entering and leaving your business in a given period. Along with balance sheets and income statements, it's one of the three most important financial statements for managing your small business accounting and making sure you have enough cash to keep operating.

  6. How to Prepare a Cash Flow Statement

    1. Determine the Starting Balance. The first step in preparing a cash flow statement is determining the starting balance of cash and cash equivalents at the beginning of the reporting period. This value can be found on the income statement of the same accounting period. The starting cash balance is necessary when leveraging the indirect method ...

  7. What Is a Cash Flow Statement?

    A cash flow statement is a crucial financial document that lists both your business's sources of cash and your business's expenses over a given time period. A cash flow statement shows if you're earning more money than you're spending. Basically, the document it gives you (and your investors) key insights into whether or not your business is ...

  8. Business Plan Financials: How to Project Cash Flow

    The Projected Cash Flow is what links the other two of the three essential projections, the Projected Profit and Loss and Projected Balance Sheet, together. The cash flow completes the system. It reconciles the Profit and Loss with the Balance. Experts can be annoying. There are several ways to do a cash flow plan.

  9. The Definitive Guide to Small Business Cash Flow

    Cash flow refers to the total amount of money flowing into and out of a business over time. Money that a small business receives is a cash inflow, while cash that leaves the business is a cash outflow. Cash flow essentially boils down to sources of funds vs. uses of funds—the money coming into a business vs. the money going out.

  10. How To Create a Cash Flow Statement for Your Business

    A cash flow statement summarizes your company's cash inflows and outflows. It's a snapshot of the amount of cash entering and leaving your business, enabling you to evaluate its financial health. Typically, you create a cash flow document every month, quarter, or year. This financial statement is divided into three main business activities:

  11. How To Create A Cash Flow Plan That Works For Your Business

    1. Set up a cash flow projection. First, you need to understand your current cash flow situation and develop a projection for the next few months. You can do this by reviewing your previous ...

  12. The Importance of Cash Flow Statements in Business Plan

    Cash flow statements help in understanding your business's financial health and making informed decisions about its future. Cash flow statements are divided into three sections: operating activities, investing activities, and financing activities: Operating activities show the money coming in and going out of your business's day-to-day ...

  13. What Is a Cash Flow Plan? (Includes Tips and Example)

    Cash flow is a concept that describes money transactions a business makes, including important purchases, investments, sales and services. Creating a cash flow plan can help companies better manage their financial processes and improve their efficiency.

  14. Cash Flow Plan: How to Create One For Your Business

    Step 1: Select a timeline. The first step in creating a cash flow plan is to decide on a timeline. You can create a cash flow plan for a month or a quarter, but a good rule of thumb for most small businesses is to plan for the next 12 months. This provides a reasonable long-term picture of your finances while remaining within a manageable ...

  15. Preparing a cash flow forecast: Simple steps for vital insight

    Cash flow planning is essential: you need cash in the bank to pay your bills. Staying on top of your cash flow will help you see if you're going to run out of money - and when - so you can prepare ahead of time. Perhaps it will show you that you need to cut overheads, find new investment, or spend time generating sales.

  16. Cash flow planning: what it means and why it's important

    Cash flow planning in business involves matching funding sources with capital needs. Cash flow planning should consider both short- and long-term needs and forecast three to six months into the future. Metrics that can be monitored as part of a cash flow plan include: Days sales outstanding (DSO) Days payables outstanding (IPO)

  17. Introductory Guide to Business Cash Flow Planning

    Introductory Guide to Business Cash Flow Planning. July 14, 2022. insightsoftware is a global provider of reporting, analytics, and performance management solutions, empowering organizations to unlock business data and transform the way finance and data teams operate. We all want better business cash flow and we want it yesterday.

  18. What Is a Cash Flow Plan? (Plus Benefits and Tips)

    Businesses manage the inflow and outflow of cash by using a tool called a cash flow plan. A cash flow plan is a financial planning and forecasting tool that helps organizations track potential income, allocate the budget properly and plan for changes in income or expenses.

  19. Cash Flow Projection

    Cash flow projection is the process of estimating and predicting future cash inflows and outflows within a defined period—usually monthly, quarterly, or annually. Think of cash flow projection (also referred to as a cash flow forecast) as a financial crystal ball that allows you to peek into the future of your business's cash movements.

  20. Cash Flow Plans: What it Means, How it Works, Example

    Cash Flow Plans: A method that an insured can use to control the premium payments that they must make on their policies. Cash flow plans allow the insured to coordinate the flow of premiums with ...

  21. Cash flow planning: What business owners should know

    Cash flow is the movement of money in and out of your business—essentially, the total of how much money is going in and coming out on a monthly basis. Cash flow doesn't refer to your overall revenue or profitability, but how much cash you have available in a given period.

  22. Cash Flow Planning

    Cash flow planning refers to the process of creating a detailed budget and holistic financial plan to manage income, expenses, and savings. It involves analyzing cash inflows and outflows, identifying areas of overspending, and creating a plan to improve financial stability.

  23. What is Cash Flow and Why is it Important for Small Business?

    Cash flow is the heartbeat of your small business, reflecting the movement of money in and out. It's essential because it mirrors your financial health and is the lifeblood that sustains your operations. Think of it as the vital fluid that keeps your business's heart pumping, allowing you to cover expenses, pay employees, and invest in growth.

  24. Cash Flow Plans (Definition, Example)

    Cash flow plans are when an insurance company assesses its incomes and expenses for maintaining and keeping its cash flows above its expenses. It also refers to a plan of an individual to ensure cash liquidity in such a way that they manage their expenses and maintain a minimum balance. What is the Cash Flow Plan? How Does it Work?

  25. Sample Furniture Store Business Plan

    The Furniture Store industry in the United States, currently valued at over $100 billion, is experiencing steady growth due to consumers' increasing interest in enhancing their living spaces. A notable trend is the shift towards online furniture shopping, providing convenience and broader selection for consumers.

  26. Use systematic withdrawal plans to meet monthly cash flow requirements

    SWP is a feature offered by an open-end mutual fund scheme, where an investor can withdraw a fixed amount of money every month. Typically, on the date which is pre-decided, units from your scheme ...

  27. Grab Slides After Poor Sales Outlook Clouds Buyback Plan

    The Singapore-based company, which competes with GoTo in mobility and services such as meal delivery, expects a 14% to 17% rise in sales to $2.7 billion to $2.75 billion this year. That lags ...

  28. Sophia

    15 likes, 2 comments - sophiaxouri on February 2, 2024: "In a recent conversation, it felt like the distinguishing between my services wasn't clear, so I ..."