The Secret to Formatting Cash Flow Projections

In my last column, I said I would share with you a powerful secret for formatting your projections in a way that provides a crystal-clear view into the true cash flow of your business. Well, it's time to deliver on that promise.

I even have a gift to reward you with this week. At the end of this article I have provided a link for you to download what I call the "Peace of Mind" schedule -- FREE. This schedule is the secret to creating cash flow projections you can trust.

I hope you will take a few extra minutes as you read this to make a commitment to follow the advice I provide you here. The format for cash flow projections I will lay out for you will have a dramatic impact on the way you manage your business from this point forward.

Here are the keys to creating a powerful tool to take control of your cash flow.

  1. Show Your Cash Flows by Month
    The schedule should show 12 months of cash flows. Each month should start with the beginning cash balance for the month and end with the ending cash balance for the month.

    The first six months should be actual results for your last six-month period. The next six months should be projections. There are several benefits to having the schedule set up this way.

    First, creating your projections is easier when you have the last six months of activity in front of you. You have a perfect view of what your cash flow is likely to be because you have your ACTUAL cash flow results there to look at.

    Second, you can see your ending cash balances each month on a single schedule. You can tell whether the balances are going up or going down each month. You can then decide whether you are satisfied with the cash balances you are projecting.
  2. Revenues and Expenses Should Agree With Your Income Statement
    This is a very important point. You should include your revenues and expenses just as they appear in your income statement. Don't make the mistake of trying to show "cash receipts" and "cash disbursements" here. This is the format almost any other cash flow format uses. It's WRONG. You will sabotage your objective of creating cash flow projections you can trust if you attempt that method.

    Unless you can quickly and easily relate your revenues and expenses on your cash flow forecast to your income statement, you will forever be confused. Worse than that, you will increase the likelihood of creating inaccurate and misleading projections.
  3. EBITDA as the Primary Measure of Your Operating Cash Flow
    The revenue and expense portion of your cash flow projections should come down to EBITDA. This is your Earnings Before Interest, Taxes, Depreciation, and Amortization. It is basically a measure of your operating cash flow.
  4. Focus on Receivable Collections and Inventory Purchases
    It's critical that the schedule show you not only the revenues as recorded in your income statement but the actual amount of cash you collected for those sales. Most larger businesses use the accrual basis of accounting. As a result, revenues, and the actual collection of those revenues, are oftentimes reflected in the financial statements in different periods.

    The same principle applies to inventory. The timing of the recording of "cost of goods sold" in your income statement is different than the recording of actual inventory purchases. Your cash flow projections must clearly show the timing of actual inventory purchases and how that differs from the recording of expenses in your income statement.

    I can't stress enough how important it is for you to clearly see and clearly understand the impact these "timing differences" have on your cash flow.

    Understand this concept and you are on your way to becoming the master of your cash flow rather than a slave to it.

The schedule I teach to hundreds of business owners is called the "Peace of Mind" schedule. If you would like to download the schedule for FREE (it is an Excel spreadsheet), you can go to and click on the link to download the schedule.

Once you discover the secret to understanding and managing your cash flow, you will find your business is so much easier to manage (not to mention more financially rewarding).