Preparing First Year Cash-Flow

Back to: How to Write a Show-Stopping Business Plan Step-by-Step

1. For the final activity in the

Your Financial Plan 

1. lesson is in two parts. First we are going to prepare our first year’s projected cash-flow. This first lesson is about that preparation. The next lesson 

Creating First Year Cash-Flow 

1. reviews the process of putting the numbers into the spreadsheet. Our Activity is centered around the next lesson.

The projected cash-flow is important for the following reasons:

1. 1. • It proves that you have got the funds to provide for yourself and your family for at least the first year of your business
      • It suggests to any interested third parties (such as a bank, partner or other financial institution) that you will be able to pay back any loans or operate lines of credit for at least the first year of your business
      • It raises confidence that your business idea is one which can be profitable

Preparing your projected cash-flow

1. Cash-flow spreadsheets can often look scary – especially if you are new to the business world. Try not to be intimidated. We’ll take this step-by-step.

Here are some rules to keep in mind:

1. 1. • Don’t spread costs evenly over the year
      • Take the time to do it right – but don’t get bogged down
      • Review the expenses
   We’ll look at each of these separately below.

1. Don’t spread costs evenly over the year

1. Remember the aim of the cash-flow statement is to try, as accurately as possible, to predict the timing of cash in or out of your bank. For example, if insurance costs $1,200 per year and is payable in May, put the whole $1,200 in that month. Do not put in $100 each month. In addition, if you have a seasonal business, there may be months when you are earning more – or earning less; the cash-flow statement should reflect those seasonal fluctuations.

2. Take the time to do it right – but don’t get bogged down

1. Most of the data collected here will feed into other accounting requirements later on so it should be as accurate as you can make it. However, don’t agonise about getting a perfect set of figures. There are a lot of variables you just won’t know at this point so, where necessary, use intelligent and objective ballpark figures. You can look back on your previous experience perhaps or even ask for input from those in a similar business. If all else fails, put a stake in the ground and work on getting more precise with your figures over time.

Tip: If you are not sure, err on the side of caution and slightly underestimate cash in, and slightly overestimate cash out. That should keep you safe.

3. Review the expenses

1. Are you sure you’ve remembered everything? As part of this process, go back to the 

Your Business Idea

 section of the business plan to ensure you have accounted for each one of those product or service lines, features, and ideas. Items discussed in that section nearly always result in some sort of cash flow.