How to Project a Cash Flow Statement for Your Small Business

Even with the fanciest brand name, marketing gimmick, or the best tasting product, without a healthy flow of cash, no company can survive.  Having a solid cash flow is not just about managing a healthy business; it’s a matter of life or death for an organization.  Though it may sound extreme, small business owners must pay attention to their cash flows on a regular basis. 

The importance of strong cash flow is aptly stated in the common expression "cash is king." The premise of this is that having cash puts you in a more stable position with better buying power. While you can borrow money at times, cash affords you greater protection against loan defaults or foreclosures. Cash flow is distinct from cash position. Having cash on hand is critical, but cash flow indicates an ongoing ability to generate and use cash.

Strong revenue but still don't qualify for traditional financing? A business cash flow loan may do the trick!

Keeping Up With Debt

When you borrow money to buy equipment and inventory, you essentially use future cash flow to make your purchases. Inherently, you need positive future cash flow to pay for your debt commitments. Companies commonly have long-term loans and short-term credit accounts with vendors. Each loan requires monthly payments. The obligation to make these payments on an ongoing basis restricts your free cash flow, which is money available to invest in growing your business.


Along with debt management, strong cash flow provides the comfort and capabilities a business needs to invest in growth. Building new locations, investing in marketing and advertising, renovating your storefront, improving technology, providing more training and purchasing more inventory are among the ways your business can grow and improve with strong positive cash flow. Getting to a position of excess cash flow helps your company operate in a strategic, proactive way, rather than a reactive, defensive way.


Cash flow also gives your business greater flexibility in responding to emerging dilemmas or making critical decisions. Confidence in cash flow makes it easier to make critical purchases in the near term rather than waiting. It also allows you to disperse cash in the form of dividends to shareholders or owners. This strengthens the bond between the company and its owners. You also have the ability to offer favorable credit terms to attract new buyers if you are less desperate for cash.

Cash flow is also extremely important for times of growth. Paradoxically, especially for small business owners, great opportunities can turn out to be disastrous occasions when cash flow is not carefully considered in advance. This is especially true if your source of growth is coming from a business-to-business customer. More sales posted to your accounts receivable (because most business customers will want to delay payment through invoices) while continuing to pay in advance for your costs, expenses, and inventory, can lead you into a deep dark hole of delinquency. You should diligently study your cash flow statement and cash cycles prior to committing to the opportunity. 

Small Business Cash Flow Strategy: How to Scale Up and Optimize Your Cash Flow Plan.

Cash flow statements can easily tell you how much revenue you have coming in and how much you have going out. The data on the cash flow statement can help indicate your enterprise’s liquidity and predict where your company will stand financially in the future. Unless you can count toothpicks like Raymond in the “Rain Man,” it is essential to sit down and take the time to calculate or retrieve accurate accounting cash ratios for your business prior to undertaking a growth opportunity. Too many intelligent owners make the mistake of visualizing cash flow or counting numbers in the head. Learn about your quick ratios, current ratios, inventory turnovers, net working capital, and average payment days. Invest time and resources to build an accurate financial picture of your business, especially regarding your cash flow.

Cash flow problems can lead to business failure, but you can build some great habits in the new year. Building accurate forecasts can be challenging, but it will help you prepare for money shortfalls and make intelligent decisions when you have plenty of cash on hand.

6 Valuable Tips a Small Business Owner Can Integrate to Keep Adequate Cash Flow

Here are some tips and tricks to get your cash flow statement under control.

Know what belongs on your cash flow statement - Figuring out what to include on your cash flow statement is half the battle. There are three major areas to include:

  • Operating activities: These include revenue from selling products and services, interest and dividends and other cash receipts. Outflow from operating activities includes payroll costs, payments to suppliers and vendors, rent, utilities, insurance, taxes, and other overhead costs.
  • Investing activities: These include sales of business assets (other than inventory), loan payments and other sales that are not part of the average course of business. Outflow includes purchases of capital equipment and loans granted by the company.
  • Financing activities: These include borrowed money and the proceeds from the sale of the securities. Outflow incorporates debt service and dividend payments.

Build a payment schedule

Knowing when you get paid is crucial to creating an accurate cash flow statement. Try calendaring the dates when you invoice each month so you can generate a reliable revenue model for each month. Even though you set a regular schedule, don’t be too idealistic about your clients’ payment habits. Invoices often take at least 30 days to roll in and many clients are late with those payments.

Make sales predictions

Cash flow statements include accounts receivable, accounts payable, inventory, capital expenditures, and debt service. By making sales predictions, you can establish that your company will have enough cash each month to cover what you owe.

Build a sales forecast that projects several months ahead—or one that covers all of 2017. If you’ve been in business for more than a year, base your sales predictions on last year’s revenue. If you’re just starting a business, project sales based on research into your competition.

Plan for the unexpected

Unexpected costs will sneak up on you, so prepare in advance. Equipment repairs, new hires, or a sudden increase in material costs shouldn’t send you scurrying for cash. Small business consultants suggest that you save at least 10 percent of your monthly revenue for minor emergencies.

4 Key Small Business Tips on How to Escape a Cash Crunch

If you do find yourself in a pinch, Fundbox advances the full value of your invoice, whether it be covering payroll or an urgent equipment repair—or even if you want to invest in growing your business by taking on a new project. With Fundbox, funds can be available in your bank account as soon as the next day, and you can choose between 12 and 24-week repayment terms. Repay early, and they’ll waive all remaining fees. Use the cash to cover expenses while you wait on invoices to come in.

LVRG Funding is one of the nations largest and most trusted resources of small business cash flow funding and we do so with speed and transparency.  Want to know if a cash flow loan is right for your business, give us a call (855) 998-5874. We're here to help!