Cash Flow 101: How to forecast and manage cash flow | Reap

Cash Flow 101: How to forecast and manage cash flow


3 min read

In the first article of this series we talked about why businesses should worry about measuring cash flow instead of profit. Today, we want to provide a walkthrough of how small businesses can actually measure cash flow with minimal accounting knowledge.


Cash Flow 101: How to forecast and manage cash flow

You’re one quick google search away from finding numerous paid apps (like Pulse and accounting software add-ons for Xero) that help small businesses manage cash flow. That said, the easiest and most cost effective solution may also be the simplest: Google Sheets. It’s incredibly easy to get up and running and you can easily share this with your team and/or accountant. And most importantly, it’s very easily customizable and adaptable based on the ever changing needs of your business.

To get you started, we’ve built a Cash Flow Template to show how you are using your cash today. It outlines where your cash is coming from and when/where it’s going out. Feel free to use this as a baseline to get smarter with managing your cash flow. Just simply click the link and either download it as an Excel file or make a copy directly to your Google Drive.

What is cash flow statement?

A cash flow statement provides an overview of the cash coming in and going out over a period of time (this can be month, quarter, year, etc). It also shows how your business uses cash during this period. Most businesses choose to manage this on a weekly basis, but this may be different depending on the industry norms and the  maturity of your company.

As your business matures, you should be able to project cash flow with increasing accuracy for up to 6 months or more. Of course, as a new business, this would be very difficult to do so for simplicity, a good benchmark for small businesses would be a 4 – 6 week cash flow projection at the very least.

Step 1: Forecast revenue

Let’s begin by forecasting weekly revenue. Especially for new businesses, this may be more of an art than a science. This is okay, the accuracy of your projections will increase over time as you understand your business better. Try to be as accurate and honest as possible.

Start by looking at your past sales numbers. How much did you sell last year or last month at this time?

• If your business has seasonality or annual cycles, you will need to take this into account.

• If you’re experiencing growth as a business (congrats!), then you should also bake this into these projections.

• If previous sales resulted from specific promotions or large deals that are not recurring, you’ll have to factor

this in .

At the end of the day, erring on side of conservatism usually results in better results.

Step 2: Forecast expenses

Next, let’s go through your expenses. Start with a list of the fixed, recurring transactions that you have to pay: salary, rent, ads, software subscriptions, credit card due — basically anything that comes out from your net profit calculation. Your bank account or credit card statement should be able to give you a good idea of what these expenses are.

Step 3: Plug the data into the cash flow template

Now that you have revenue and expense data in place, it’s time to fill in your data. First, download the free Reap cash flow projection template. Update column A based on where your expenses and revenue are coming from. You can plug the figures based each specific line items (eg. Facebook ads, Google Ads) or bundle it together (eg. total weekly ad spend). Also, add your Opening Bank Balance on cell B3 for the first week so that we can predict your cash balances going forward.

Step 4: Keep you cash flow projections updated

Now that you’ve projected your cash flow for 4 – 6 weeks, you need to incorporate this into your day-to-day operations. You should set up a regular cadence to monitor and update this living document. Bookmark the document on your browser so you can have access easily. At a minimum, you’ll need to update the Closing Bank Balance every week and see if it matches your previous calculations. You’ll also want to continue adding weeks to your cash flow projections so you maintain visibility of a minimum of 4 to 6 weeks.

If there is ever a cash deficit (where cash coming is lower than cash going out), you’ll be alerted when the Closing Bank Balance turns red. By forecasting potential shortfalls ahead of time, you’ll be prepared to collect payments related to sales faster or delay outflows of cash on the expense side (you can do this for any large expenses on Reap!).

Download our free cash flow template

If you haven’t already, don’t forget to grab your free cash flow template. Just click on this link, and you can access the spreadsheet in Google Drive. You’ll need to be logged into your Google account to make a copy.

Most companies cannot survive without proper cash flow management. But anyone can do it. Take the time to get organized now, and it’ll be easy to stay on top of it.

If you have any other thoughts about managing cash flow, please feel free to email us any time!