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Be Clear. How to Build Cash Flow Projections For Your Business

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This training is brought to you by the Women’s Business Center, an initiative of the

Entrepreneur Fund. The Women’s Business Center is funded in part through a Cooperative Agreement with the U.S. Small Business Administration.

Be Clear

How to Build

Cash Flow Projections

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The Basics

Knowing and understanding your cash flow is one of the most

important steps in successful entrepreneurship. It provides a view of the financial landscape of your business and helps you to answer critical questions such as:

• Can I meet my financial obligations?

• Can this business make a profit?

• Can I pay myself and my employees?

Creating cash flow projections (CFP) involves making realistic, educated assumptions on sales and expenses.

Once created, your CFP are used to:

• Demonstrate viability (sustainability for your business)

• A macro financial view of your business

• Determine your working capital needs

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Please  Note…  

Make sure you have The Salsa Company example provided on our website to use as a guide/learning tool as you view this webinar.

If you are not comfortable using the Cash Flow Projections Excel template we provide, please document all necessary information and compile and organize.

A business developer at the Entrepreneur Fund can assist you with the spreadsheet when you have completed a draft of your business plan.

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The Framework

Total Sales – money coming into the business for each product or service offered

Cash Out For Goods (variable costs) – money going out to pay for costs that will change based on sales. For example, if you sell coffee, the more coffee you sell, the more coffee beans you have to purchase

Cash Out for Operations – (fixed costs) ongoing monthly expenses you pay to operate your business like rent, payroll, advertising and insurance

Other Cash In

this  is  money  that  is  coming  into  the  business  through  loans,  owner’s   cash contributions or investors

Other Cash Out

these are dollars going out for loan payments, equipment, leasehold improvements etc.

If you are a new business, you do not know what your sales will be and you may not know exact expenses. When historical operating numbers are not available,

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1

st

Category - Total Sales

List each product and service separately. In The Salsa Company there is only one sales category. Another business might look like this;

It is time to determine, or forecast, your income by product/service and by

month.    What  if  you  don’t  know  your  income?    Then  you  form   assumptions.    Let’s  look  at  forming  assumptions….

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Forming Assumptions

First, perform thorough industry and competitor research; in other words, become an expert in your industry and the market(s) in which you will operate. This data will provide information to determine realistic sales volume, pricing and timing, as well as, expenses to expect.

For more information on this, please view our webinar Be Clear – Researching Feasibility.

Making valid financial assumptions is critical. If you are too optimistic, you may find yourself in financial trouble and if you are too conservative, you may find yourself borrowing more money than you need.

Explaining your assumptions clearly and backing them up with solid research can be a deciding factor in whether or not you receive a loan.

Your financial assumptions will be challenged by a loan committee. Have knowledgeable answers ready for these challenges.

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Sales Assumptions -

example

Assumptions from The Salsa Company business plan –

• There is an overall population of 35,611 which is made up of 12,391

households in our target geographic market; 21%, or 2,602 households, will purchase from The Salsa Company.

• $9.38 is the average sale per transaction with an annual total purchase of

$75.04 per customer per year.

• Salsa sales will increase in January due to the Superbowl and in May due to

Cinco De Mayo. Sales are also higher during the summer months for outdoor entertaining and during football season for parties.

• Through expanded product line and introduction in three specialty stores,

sales will increase approximately 20% during year two.

• Debt service is based on a 5 year term at 9% interest on $38,242.

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1

st

Category - Total Sales

If 2,602 households will purchase an average of $75.04 per year 2,602 x 75.04 = 195,254

Sales are higher in January and May due to Superbowl & Cinco de Mayo, as well as the summer months.

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2

nd

Category - Cash Out for Goods

Cash Out For Goods are the expenses that will change, or vary, based on your sales volume. In this case, the more salsa sold, the more ingredients needed.

If you are a courier company, the more deliveries you make, the more fuel you would need. If you are a printing company, the more you print, the more paper you would need.

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3

rd

Category - Cash Out for Operations

Cash Out for Operations is where you list your recurring monthly expenses such as rent, utilities, supplies, payroll, payroll taxes. These are referred to as fixed expenses because these expenses are there regardless of your sales or income.

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4

th

Category - Other Cash In

This is where you would list other money coming in via:

• Owner’s  cash  contribution  – in this case $12,500

• Investor’s  cash  contribution  – no investors in The Salsa Co.

• Business loan proceeds – in this case $38,242

• Working capital proceeds – this does not appear necessary based

on  the  CFP,  however,  if  sales  did  not  materialize,  the  owner’s  do  

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th

Category - Other Cash Out

This is where you list other monies going out of the business that are not for operations. Examples include loan payments, leasehold

improvements, equipment or one-time purchases.

During the start-up phase of a business (0-24 mos.) owners will often not schedule a paycheck for themselves because they need to make

sure all other operating bills get paid first in order to continue operating. If enough money is generated for the owner to get paid, it is often

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Beginning Cash & Ending Cash Balance

This an illustration of how much money will be in your business

checking account at the beginning and the end of the month based on the money assumed to be coming in and going out.

If you dip below $500 any given month, you may need to spend less or have additional emergency funds to get you through that month.

This particular business is very well capitalized an not representative of many start-ups.

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Templates

on website

Use the Cashflow Worksheet to create your 2-year projections and the Start-Up Costs document for your start-up costs. If you are seeking financing, we will merge them later in the process.

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This training is brought to you by the Women’s Business Center, an initiative of the

Entrepreneur Fund. The Women’s Business Center is funded in part through a Cooperative Agreement with the U.S. Small Business Administration.

For additional assistance, contact

Carmen Beardsley

cbeardsley@entrepreneurfund.org

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