Cash flow projections: planning ahead for what your business will need
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Key takeaways
A cash flow projection forecasts whether a business will have enough cash to cover upcoming expenses.
It’s built from expected inflows, like sales and receivables, and expected outflows, like payroll and vendor payments.
Businesses with international payments need to factor in longer, more variable settlement times than domestic transactions.
Reviewing and updating projections regularly keeps them useful as actual numbers come in.
Building in a buffer for currency and timing variability reduces the risk of an unexpected shortfall.
Knowing whether a business will have enough cash to cover expenses next month, including international vendor payments, is what a cash flow projection is for finding out before it’s a problem. Here’s how to build one.
What is a cash flow projection?
A cash flow projection is a forecast of the cash expected to move in and out of a business over a future period, typically weeks or months ahead. It’s built from expected inflows, such as sales revenue and payments from clients, and expected outflows, such as payroll, rent, and vendor payments, giving a forward-looking view of whether the business will have enough cash on hand when it’s needed.
How to create cash flow projections step by step
List expected cash inflows. Include confirmed sales, expected client payments, and any financing anticipated.
List expected cash outflows. Include payroll, rent, loan payments, and both domestic and international vendor payments.
Assign realistic timing to each item. Not every invoice gets paid on its due date, so building in a reasonable buffer for late payments matters.
Factor in international payment variability. Add extra time for international transfers, both sent and received, since they often settle more slowly and less predictably than domestic ones.
Calculate the projected balance for each period. Starting cash plus inflows minus outflows gives the projected ending balance.
Update the projection regularly as actual numbers come in, comparing them to estimates and adjusting assumptions.
Record-keeping tip
Keep a projection and actual results in the same document or spreadsheet, so they can be compared side by side over time. This makes it much easier to see whether assumptions about international payment timing are realistic or need adjusting.
Cash flow projections and international payments
For small business owners with international payment obligations(opens in new window), incorporating currency and timing variability into cash flow forecasts is a practical skill that domestic-only forecasting doesn’t require. A payment expected to arrive from an international client on a certain date might settle later, or convert to a slightly different amount than expected due to exchange rate movement between invoicing and payment.
Building a small business budget(opens in new window) that includes a buffer specifically for this variability, rather than assuming international payments will always behave exactly like domestic ones, makes projections more resilient and reduces the chance of a cash surprise around a payment being counted on.
Building a projection using three scenarios
Rather than building a single cash flow projection, some businesses create three versions, a conservative, expected, and optimistic scenario, giving a range of outcomes to plan around rather than relying on a single, potentially inaccurate estimate. This approach is particularly useful for a business with variable income, such as one dependent on seasonal demand or fluctuating international client payments.
Updating projections as actual results come in
A cash flow projection is most useful when it’s a living document, updated regularly by comparing projected figures against what actually happened, then adjusting future projections accordingly. A projection built once at the start of the year and never revisited loses much of its practical value as circumstances inevitably shift.
Why new businesses often overestimate early revenue
A common pitfall in a first-time cash flow projection is overestimating how quickly revenue will ramp up, leading to a projection that looks healthier than what actually unfolds. Building a deliberately conservative early revenue estimate, then adjusting upward as actual results justify it, tends to produce a more useful and trustworthy projection.
Why involving your bookkeeper in projections improves accuracy
A bookkeeper(opens in new window) who’s intimately familiar with actual historical transaction patterns can often spot an unrealistic assumption in a cash flow projection that the business owner, working from memory or optimism alone, might miss, making their involvement valuable even if they didn’t build the original projection.
Common questions about cash flow projections
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How far ahead should a cash flow projection look?
Many small businesses project 8 to 13 weeks ahead for operational planning, with a longer, less detailed projection covering 6 to 12 months for broader planning. The right horizon depends on how predictable revenue and expenses are, and businesses with significant international payment activity often benefit from closer, more frequent short-term projections.
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What’s the difference between a cash flow projection and a budget?
A budget typically sets planned spending and revenue targets for a period, while a cash flow projection forecasts the actual timing of money moving in and out, which can differ from budgeted amounts due to payment delays or timing. Many businesses use both together for a complete financial planning picture.
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How do I account for international payment delays in my projections?
Building in extra time beyond what a domestic payment would take, based on experience with typical settlement times for specific corridors and delivery methods, is the practical approach. Without that experience yet, starting with a conservative buffer and refining it based on actual results is more reliable than assuming international payments will always be as fast as domestic ones.
In Summary
A cash flow projection turns uncertainty about the future into a concrete plan, helping in spotting a potential shortfall before it becomes an emergency. For businesses with international payments, building in realistic timing and currency buffers makes the difference between a projection that’s genuinely useful and one that gets thrown off by the first delayed transfer.
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