How to create a cash flow projection report

Let's face it—learning how to build a cash flow projection report isn't just number-crunching. It's about giving your business the financial visibility it needs to make smarter decisions.

In this guide, we'll walk you through both the fundamentals and advanced techniques of building a cash forecast report, including automation strategies that save time while boosting accuracy.

What is a cash flow projection report?

A cash flow projection report or cash forecast report is a financial document that projects the anticipated flow of cash entering and leaving a business over a specified period. It provides a detailed estimation of a company's future cash position by outlining expected income and expenses for a designated timeframe.

Cash projection reports can vary in scope, from short-term forecasts covering the next 30 days to medium-term forecasts spanning one month to one year, or long-term forecasts extending from one to five years or more.

At its core, a cash projection or forecast report estimates whether a business will experience a positive cash flow (more cash incoming than outgoing) or a negative cash flow (more cash outgoing than incoming) at specific points in time. This visibility into future cash positions is essential for businesses to maintain sufficient liquidity to meet their obligations and support their operations.

Cash flow projection provides a window into your company's financial future, helping you anticipate challenges and opportunities before they arrive. By understanding what makes an effective forecast, you can transform uncertain financial waters into navigable paths for your business.

Purpose of a cash flow projection report

Predicting future cash flow is a top priority for any company as it enables them to optimize their cash positions effectively. Cash forecast reports serve as an early warning system, alerting management to potential cash flow problems before they materialize. With this foresight, businesses can prepare contingency plans and take proactive measures to address any projected shortfalls.

Cash forecast reports play a critical role in supporting informed decision-making regarding funding, capital expenditures, and investments. By understanding when and how much cash will be available, management can time major expenditures to align with periods of higher liquidity, avoiding unnecessary strain on the company's finances.

With an accurate cash forecast report, businesses can minimize the cash buffer needed for unexpected expenses and utilize excess cash more effectively. This strategic allocation of resources enhances overall financial efficiency and can lead to improved returns on available capital.

Additionally, it allows for better planning in anticipation of cash deficits and more efficient management of foreign exchange (FX) risk.

The benefits of cash flow projection

Cash flow forecasting provides numerous advantages that can significantly improve a company's financial health and strategic position:

• Starting point for projections based on reality: Cash flow forecasts combine projected figures with actual cash flows, ensuring that projections are grounded in reality and providing a more accurate foundation for future planning.
• Historical data as a foundation: Utilizing historical cash flow data, including insights from your indirect cash flow statement, reveals patterns in cash fluctuations, which can be instrumental in predicting future trends and creating more reliable forecasts.
• Accuracy analysis capabilities: By comparing forecasted cash flows with actual results, companies can evaluate the accuracy of their predictions, enabling them to refine their forecasting methods over time and improve future accuracy.
• Prevention of cash shortfalls: Effective cash flow forecasting plays a preventive role, allowing companies to anticipate potential cash shortages and devise strategies to maintain adequate cash levels before issues arise.
• Improved financial planning and decision-making: Cash flow forecasting provides visibility into future cash positions, enabling better financial planning and more informed decisions regarding investments, expenses, and financing options. Implementing effective cash flow improvement strategies can further enhance these decisions.
• Early identification of cash shortages and surpluses: By projecting cash flow, businesses can identify potential cash shortages or surpluses in advance, allowing proactive measures to address shortfalls or optimize the use of excess cash.
• Enhanced working capital management: Cash flow forecasting helps optimize working capital by providing insights into cash inflows and outflows, enabling more effective management of receivables, payables, and inventory levels.

How to build a cash flow projection report

The following steps will guide you through building a forecast that provides meaningful insights rather than just numbers on a page.

1. Define the forecast period and intervals for your cash forecast report

The first critical step in learning how to build a cash forecast report is determining your time horizon and reporting intervals. Your forecast period should align with your business objectives—whether you're planning for short-term operational needs (weekly or monthly forecasts) or long-term strategic decisions (quarterly or annual projections).

The time period you select impacts the level of detail and accuracy you can achieve, with shorter-term forecasts typically offering more precision than longer projections.

Your reporting intervals should reflect how frequently financial decisions need to be made in your organization. For instance, businesses with tight cash constraints might benefit from weekly intervals, while more stable operations might work effectively with monthly reporting.

Remember that different stakeholders may need different time horizons—treasury teams often need daily or weekly views, while executives might focus on monthly or quarterly cash positions for strategic planning.

2. Gather financial data for your cash forecast report

Collecting comprehensive historical financial data, including your cash budget, forms the foundation of your cash forecast report. Start by extracting information from your accounting system, including past sales records, customer payment patterns, vendor payment schedules, recurring operational expenses, and insights from your integrated accounting systems.

This historical information reveals trends and seasonality that will inform your projections. For accuracy, include at least one to two years of historical data to identify repeating patterns in your cash flows.

3. Determine the opening balance in your cash forecast report

Your opening cash balance serves as the starting point for all subsequent calculations in your cash forecast report. To establish this figure, you'll need to determine your current cash position by identifying all cash and cash equivalents available to your business. This includes balances in bank accounts, short-term investments, and any other liquid assets that can be quickly converted to cash without significant loss of value.

The opening balance should reflect the actual cash available at the beginning of your forecast period, not projected amounts. If you're creating a rolling forecast, the closing balance from your previous period becomes the opening balance for the new period, creating continuity in your financial planning process.

4. Forecast cash inflows

Start with your sales department's projections, but remember to account for the timing difference between when a sale is recorded and when payment is received. This is particularly important in industries like e-commerce, where e-commerce cash flow management can be complex due to delayed payments and returns.

Historical collection patterns can help you estimate how quickly customers typically pay their invoices.

Include all potential sources of cash in your cash forecast report—not just sales revenue, but also incoming loan proceeds, tax refunds, asset sales, or investment returns. For each revenue stream, apply appropriate collection percentages based on historical data.

For instance, if your accounts receivable data shows that typically 70% of invoices are paid within 30 days and 25% within 60 days, build these patterns into your cash receipt projections.

5. Forecast cash outflows

Categorize your outflows into fixed expenses (rent, salaries, loan payments) and variable costs (materials, commissions, utilities). For fixed costs, enter the exact amounts and payment dates. For variable expenses, use historical data to establish patterns and relationships with sales volume.

Remember that timing is crucial when projecting outflows. For example, if your Cost of Goods Sold is 60% of sales, a forecast of $100,000 in sales implies $60,000 for inventory—but the cash impact depends on payment terms.

Labor costs typically require immediate payment, while raw materials might have 30-90 day payment terms. Implementing efficient accounts payable strategies can optimize these payment schedules.

Don't overlook irregular or one-time expenses such as equipment purchases, training programs, annual bonuses, or tax payments. It's advisable to include even uncertain expenses as a precaution to ensure sufficient cash flow coverage.

6. Calculate net cash flow

For each time period in your cash forecast report, subtract the total cash outflows from the total cash inflows. This calculation reveals whether your business is generating or consuming cash during that specific interval.

7. Determine closing balance

The closing balance represents your projected cash position at the end of each forecast period and serves as a critical indicator of your business's financial health. To calculate it, add the net cash flow for the period to your opening balance.

This closing figure becomes the opening balance for the subsequent period, creating a continuous forecast chain.

Here's how this looks in practice using a simple one-month forecast example:

Ramp can help companies control spend and manage cash flow

You probably already use accounting software, which automatically tracks your debits and credits and generates cash flow statements. But knowing your operating cash flow is just the first step in managing it.

Ramp is an expense management platform that connects with your accounting platform to give you instant visibility into your company’s spending, which is an important step in managing cash flow. By automating expense management and recognition, Ramp can free up your accounting team members to focus on more high-value projects like strategic planning.

Learn more about how Ramp can help you manage your cash flow.