Guide to cash flow projections and how to create one

To successfully build and grow a company, it’s essential to understand how cash moves in and out of your business. You can determine this information by calculating your business’s cash flow. And to figure out your future cash flow, you can create a cash flow projection. Think of a cash flow projection as a way to predict your business’s future financial standing. The insights you gain from it can help you make smarter business decisions and determine if you’ll have enough cash to cover upcoming expenses. 

Keep reading to learn more about cash flow projections and how they can help your business. 

What you’ll learn:

• A cash flow projection is a way to determine how much cash is coming in and moving out of your business over a set period of time.

• Creating a cash flow projection can help you make smarter financial decisions. It can also provide a metric for comparison purposes and help you plan for the future.

• To create a cash flow projection, you’ll need to total your business’s inflows and outflows, calculate net cash flow and compare those numbers against your opening and closing balances.

A cash flow projection is a way to estimate how much cash is moving in and out of your business over a given time frame. Cash flow projections typically cover a 12-month period, but you can choose to do them weekly, monthly or quarterly, depending on what works best for your business. To create a cash flow projection, start by determining the anticipated inflows from sales and the expected outflows for expenses over a set period of time. 

Estimating your business’s future cash flow can help guide your financial decisions during forecasting and give you time to prepare for any potential deficits. If you spot an upcoming cash surplus, you might choose to reinvest that money back into your business or start scaling your company. On the other hand, if you identify a potential shortfall in your projection, you could consider cutting costs or boosting your sales efforts.

Knowing your business’s anticipated cash flow can help determine the success of your company. Here are some of the top advantages of creating a cash flow projection:

• Identifying potential cash shortages and surpluses: Projecting cash flow gives you a glimpse into your business’s financial future by showing the cash coming in—known as receivables—and the cash going out—known as payables. This information can tell you if your business will be in the green or in the red. 

• Having a benchmark to look back on: Once you’ve created a cash flow projection, you can refer back to it at a later date for comparison purposes when you’re setting a new projection. It also contains important metrics—about business expenses and income—that could be useful down the line. 

• Making informed business decisions: If you find that your projected cash flow is going to be positive, you can start planning for future growth opportunities, like hiring a new employee or investing in business promotions. But if your cash flow is going to be negative, you might find ways to cut down on spending. 

• Opening up additional opportunities: Lenders could ask for your cash flow projection when deciding whether to extend you a line of credit. And this information might also be necessary when you’re opening up another business credit card. A boost in funds could lead to new opportunities and help you take your business to the next level.

Here’s how you can create a cash flow projection for your business:

Start by determining the time period you want to estimate. A short-term projection—typically three to 12 months—can help you understand your business’s immediate needs. Longer-term projections—typically, for more than a year out—can be used for big-picture planning and business goal-setting.

Once you’ve chosen the time frame for your projection, the next step is to collect all the necessary information from that period. This includes any historical financial data showing your cash inflows and outflows. Sales data—like seasonality trends and customer payment behaviors—can also be helpful when creating your cash flow projection.

The opening balance is the amount of money your business has available at the start of each period. It’s equal to the closing balance from the prior period.

Opening balance = Previous period’s closing balance

Next, estimate your cash inflows—how much money your business will bring in during that period. Business cash inflows are broken down into three categories: operating activities, investing activities and financing activities. Here are some examples of cash inflows for each:

• Operating activities: Cash inflow from sales revenue, accounts receivable collections, royalties or licensing fees, and tax refunds

• Investing activities: Cash inflow from selling assets like equipment or property, earning interest or dividends, and collecting loan payments 

• Financing activities: Cash inflow from equity or debt financing and any capital contributions from shareholders or owners

Cash flow can also come from one-time sources such as government or organizational grants or subsidies, insurance payouts, legal settlements or donations.

Now forecast how much cash you expect to pay out from your business during that same time period. This is known as your business’s cash outflows. They typically fall into three main categories:

• Operating activities: The cash outflow from the day-to-day costs of running your business might include salaries and wages, supplier payments, rent, income tax, marketing costs and utilities.

• Investing activities: This cash outflow from money your business spends on long-term investments includes buying fixed assets like machinery or plants, or loaning money to other businesses. 

• Financing activities: This cash outflow from the costs associated with funding your business includes repaying loans, paying dividends to shareholders and repurchasing shares.

Once you know your inflows and outflows, you can calculate your business’s cash flow. Your business’s net cash flow is the difference between total cash inflows and total cash outflows. You can use this simple formula to calculate it:

Net cash flow = Cash inflows − Cash outflows

After you’ve gathered and totaled all the information, you can calculate your business’s closing balance. This number shows how much of a cash surplus or deficit you expect to have at the end of the period. To calculate the closing balance, you can use this formula:

Closing balance = Opening balance + Net cash flow (Cash inflows − Cash outflows)

To better visualize your business’s projected cash flow, here’s an example using a fictional restaurant, The Grazing Table.

In the example, The Grazing Table used a cash flow projection time period of three months. Their opening balance was $35,000 in January of 2025. After adding up the cash inflows from sales, investments, accounts receivable and grants, the total inflow came to $90,500. Then after subtracting outflows like operating expenses, inventory, loan repayments, cash reserves and salaries, the total outflow was $68,000. 

Here’s how the net cash flow is calculated:

$22,500 net cash flow = $90,500 total inflow − $68,000 total outflow

Then you can determine the closing balance using this formula:

$57,500 closing balance = $35,000 opening balance + $22,500 net cash flow

The $57,500 closing balance can then be carried over to the next month as the new opening balance. In this example, the projection shows positive cash flow, so the business owner might decide to reinvest some of the extra funds to fuel business growth.

Cash flow projections focus on a mix of historical data and future assumptions to estimate how much cash will move in and out of your business over a longer period. Cash flow forecasting, on the other hand, relies on current information and data while focusing on shorter time frames—like weekly or monthly periods—for more immediate decision-making. Cash flow projections are typically more static, while cash flow forecasts are updated more frequently to reflect changing business conditions and real-time data.

Projecting your business’s anticipated cash flow gives you valuable insight into how your company might perform financially in the future. Once you know whether your cash flow is expected to be positive or negative, you can make informed decisions about the next steps for your business. For example, a positive cash flow could signal that it’s time to expand your organization. Conversely, a negative cash flow could signal that it’s time to cut costs or redouble sales efforts. 

If you’re considering a business credit card to help promote growth for your business, consider getting pre-approved with Capital One so you’re better prepared to hit the ground running for your business.