Business plan tips cash flow

Business plan tips: how to plan a cash flow projection


At Vancity, we see hundreds of business plans each year from new and aspiring entrepreneurs. And from that experience, we know there are five areas in the business plan that entrepreneurs may not spend enough time on: business objective, SWOT analysis, cash flow projection, competitive advantage and market potential.

In this series, I’m going to share some tips on each of these five areas to get your business plan in top shape. In this post, I’ll cover how to plan a cash flow projection.

Cash flow projection

Creating a cash flow forecast is a critical step in your business plan. A good projection should track your business income and expenses month by month, while reflecting the times of year when your cash requirements increase and decrease. It should not only help a financial institution understand more about investing in your business, it should help you to understand your own financing needs.

Here are some tips to help build a comprehensive cash flow projection:

1. Lay out your first 24 months

Most financial institutions are looking for a two-year plan. Here is an example of a cash flow template to detail a 24-month cash flow, with annual and monthly totals (if you prefer a spreadsheet that also works). Go one extra and important step further and include three versions of your projection: conservative, realistic, and optimistic!

Keep in mind how much you need to sell or profit just to cover your daily operations. Not sure where those magical numbers come from? If your business is retail, try sitting outside a competitor’s for a day to count the number of people who walk in. Next, you can estimate how much they spent, make a note of what product costs you would have, and build a cash flow off of those numbers. For a service-based business, think about how many billable hours per week you need at your projected hourly rate to cover your expenses. How many clients will it take you to reach those numbers?

2. Be specific

Be as detailed as possible by breaking down your monthly, annual, and seasonal expenses. Don’t forget to include items that might not seem obvious or specific to your business. Things like insurance, business license, subscriptions, memberships, cell phones, supplies, rent, heat, and light.

3. Plan for contingencies

A potential lender will always look at the worst-case scenario. If you only make half of what you thought you would, will your business survive? Plan for contingencies and be realistic.

Ask yourself some tough questions. How are you paying yourself? Is that enough for you to live on? What systems do you have in place to support the business if things don’t go according to plan?

Lack of cash flow is one of the main causes of small business failure. That’s why this part of your business plan is crucial. Don’t skip it or create numbers without proper research. And if working with numbers just isn’t your thing, don’t be afraid to ask for outside help to develop your cash flow projection.

Looking for more support?

Looking for more support to help you complete your business plan? Find out when our next Each One, Grow One small business workshop is happening. The workshop is offered free for members and non-members, and are a great starting place to create your perfect business plan.

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