Cash Flow Projections and Your Small Business Loans

A Home Business Article Contributed by Alina Sandor

What are Cash Flow Projections? are They for Small Business Loans?

A cash flow projection shows how cash is expected to flow in and out of your small business. It is an important part of your business plan because it gives you an idea of how much cash your business will need from the loan.

It is a tool you can use for cash flow management, letting you know when your expenditures are too high and the cash flow projection shows a bank loans officer that your small business is a good credit risk and that there will be enough cash on hand to make your business a good candidate for a line of credit or short term loan, depending on your needs.

How a Projection Works for Your Small Business Loan

A cash flow projection describes the cash flow that has occurred in the past for a business, so it works well for a business that has been around a while. The cash flow projection can also show the cash that is anticipated to be generated or used over a chosen period of time.

In a business plan, a cash flow projections for each month over a one year period as part of the financial plan portion of your small business plan for your loan. The financial plan consists of a description of your funding requirements, detailed financial statements, and a financial statement analysis.

How to Start a Projection Small Business Plan

A projection plan has three parts: cash revenues, cash disbursements, and reconciliation.

Cash revenues cover your estimated sales figures for each month entering the sales that are collectible in cash during the specific month you are dealing with.

Cash disbursements will cover expenses and list the cash you will expect to spend that month for each month.

The reconciliation is of your cash revenues to cash disbursements. The top of the page starts with your opening balance that has carried over from your previous month's balance. This current month's revenues are added to this balance and the current month's disbursements are subtracted. The adjusted cash flow balance is carried over to the next month, and so on.

Using a Sales Forecast As Part of a Projection for Your Small Business Loan

A sales forecast uses your small business' projection show how your sales are going to look in the near future. You can figure this by looking at what other stores your size are selling, how many households needing your goods live within a particular area, how much will they spend on these items annually, and what percentage of their spending will you get, compared to competitors, or by figuring out what your average sale is in a day and by multiplying that by 30, which equals one month.

You may chose not to have a sales forecast in your business plan, because it seems too time consuming, but it is a major factor when bankers are looking at your loan possibility. So trudge though!