A cash flow projection is an integral part of the financial section of all business plans, litereally describing how cash is projected to flow in and out of your business. Creating a cash flow projection isn't as easy or as cut and dried as the other financial statements entrepreneurs require, because instead of merely reporting financial figures it demonstrates how various things may affect your business in the future. A key component of creating a cash flow projection is knowing how to forecast your sales.

Note: A cash flow projection is not the same thing as a cash flow statement. Where cash flow projections are used to anticipate future cash flow, cash flow statements are used to explain previous actual cash flow.

Why Do I Need to Write a Cash Flow Projection?

Cash flow projections are crucial to both new and experienced entrepreneurs alike because they clearly show what costs, profits and losses are coming down the pipe so as better to plan for. This assists the entrepreneur in determining whether or not he/she has enough capital in place to run the business for the period of the projection (usually monthly for a full year). Cash flow projections are also used by loan companies to determine whether or not a business is a good credit risk.

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