Why Cash Is “King” and Projecting Cash Flow is “Emperor”.  It is crucial these days to know about projecting cash flow.

Here’s why:

  • During these uncertain times, how much longer can you survive in your business without going in the red? All too real is the many businesses that have less cash coming in due to the pandemic. On the other hand,
  • Can your company handle growth? (What if you were manufacturing masks a year ago?)
  • What if there were a gas leak or water main break and you had to shut down during normal times? Insurance only goes so far.

To project cash flow proactively and preventively, you’ll need to prepare for a variety of possible scenarios. One of the best ways to achieve that is by being familiar with cash flow projection tools. And who doesn’t like to talk about cash?  This post contains two ideas: Improving cash flow and projecting cash flow.

Part I: Cash and Improving Cash Flow

Cash is not just what’s in your bank account. To know how much money (cash) you have, you must add back (to the bank balance) any deposits in transit, back out your outstanding checks, and pretend that all the checks you’ve written were cashed all at once (not likely, but better to think that way).  Cash is essential because you can take advantage of opportunities (like buying new equipment or a new warehouse at a fair price), but you also can protect yourself if business slows down.

Importance of Understanding Cash Flow

The value of understanding cash flow is to have an idea of where you will be in the future (tomorrow, next month, year, or ten years) based on where you are today. Having a handle on cash flow lets you know 1) what bills you can pay and when; and 2) what income is on its way.

Six Ways to Improve Cash Flow
  1. Making Payments
    • Take advantage of discounts – Example 2/10 net 30 (2% discount if paid within ten days). It’s doesn’t seem like a lot, but add it up over a year, and you have accumulated a nice chunk of change. Don’t miss this opportunity if you have cash available to do it.
    • If there are no discounts offered, keep your money and wait until the invoice or payment is due. You will have use of that money during that time. It all adds up.
  1. Handling Receipts
  • Provide special payment terms for a slow payer. (Offer them the 2/10 net 30 to get your money quicker, and make sure sales invoices are sent out A S A P.
  • Send invoices to the right person (NOT the CFO, but AP department). Usually, the CFO doesn’t cut checks, and the invoice will sit on their desk until they walk it down to the payments department.
  • Hire a good A/R (Account Receivables) collections person. Have them call people to get the money paid. These employees usually pay for themselves!
  • Deposit checks immediately.
  1. Knowing your inventory
  • Inventory = Cash
  • Do not hold your cash in inventory that’s not turning (selling). Get rid of slow movers (maybe you run a sale or promotion). Increase fast movers, and be sure to work with your suppliers to alert them to your changes in purchasing amounts and frequency.
  1. Renegotiating prices and rates

Meet with vendors, suppliers, freight companies, service providers (phone, internet. etc.) for better rates. Question automatic yearly rate increases and ask for the previous year’s lower rate. Don’t forget to say thank you. If they say no, it’s okay to shop, but you gave the incumbent first shot to maintain your business.

  1. Obtaining a Line of Credit (LOC)

It’s good to have one available in times of uncertainty or growth, but If you can’t get a line of credit, try increasing your credit line on your credit cards. Be careful of the interest rates, and don’t forget to negotiate! You can also try factoring (collateralize) your receivables. You pay to have access to cash, but you do that if you take out a loan as well. Check with your CPA on any of these. You can also apply for an SBA 7 (a) loan (collateralized but competitive). You’ll have to find out if you qualify, but it’s a pretty good source of emergency funds. We like to urge our clients to be prepared! Like the Scouts.

  1. Creating a Budget

Research areas that are over or under budget. Ask different department managers, e.g., warehouse, marketing, manufacturing, how they’re spending their budgets, and perhaps where they could cut expenses. Once you have the numbers, input the budget line items into some accounting software to compare Budget to Actual. There are many different software programs, and some are nicely tailored to specific industries. When the numbers are captured into the computer, the fun of cash flow projections begins.

Part II: How to Project Cash Flow

Using a simple Excel spreadsheet

You can plan for different what-if scenarios, and you can predict pretty accurately what your weekly, monthly, and yearly projections will be. Here’s an example. The Excel spreadsheet is set up with functions in each cell that will do the calculations for you. Notice at the bottom of the Excel sheet, there are four tabs (circled in red below): Summary, Most Likely, Best-Case, Worst-Case.  It’s probably best to be in the Most Likely and Worst-Case sheets. The Best-Case sheet can lead you to over-spending.

Be advised, the Worst- Case sheet might be too conservative, and you can lose opportunities!  This is the summary sheet.

We can help you set this up. You’ll be putting in the income and expenses (payroll, utilities, supplies, etc.), and you will have a number at the end of the process showing if you can pay your bills the next week.

The process continues with cash outflows, and clicking each of the tabs at the bottom will show you the best, worst, and most likely cases.

These are figures that give you some control over your cash and your business. The first time you do it, the process will seem slow, but you will speed up through repetition.

How to Project Cash Flow with ProfitCents

ProfitCents is a program we use here at LSL CPAs that allows us to help you play out “what-if” scenarios. Like what? How increasing/decreasing receivables collection will impact you. OR how increasing/decreasing days inventory on hand will impact you.

OR what happens if you move your payables schedules in or out? Increase payroll?

Take a week off?

The beauty is that you can input various numbers into the calculator portion of the tool to instantly see the difference in your cash flow from that move. Imagine trying to do that with pencil and paper! Leveraging technology is good business.

Here are some more things that ProfitCents [and similar tools] can help you understand as you consider future events that can affect your business planning.

  • Seasonality in your business
  • Purchasing assets (yes or no, now or later?)
    • With cash?
    • Through financing?
    • How will financing equipment affect your future cash flows?
  • Increase or decrease in revenues
  • Increase or decrease in variable and fixed costs
  • Increase or decrease in contract costs such as rent and insurance (Don’t forget to see the negotiations section above!)
  • How do payroll adjustments impact your cash flows and bottom line?

Keep iterating. Be curious. Keep asking. “What if?” You may be pleasantly surprised to learn you can buy that piece of equipment, rent a bigger space, or add a workshift to increase production without purchasing new equipment. How cool is that?


It’s easy for us to think we know what cash flow is. It’s mostly “noticeable” when the cash is flowing slowly, or it’s flowing one way: Out. That’s when we pay attention to it, but that is dangerous. There are many ways to help your business thrive and survive the troughs of contraction and the surges of expansion. Taking control of your cash flow is one. Increasing it is another, and lots of fun. Projecting it is the safest and also the most satisfying.

Most importantly, your profit and loss statement (P & L) does not capture the power of cash flow analysis. Unfortunately, by the time you receive the P & L, you’re looking behind at what happened in the past. It’s nice to know, but lacks the element of actionability. By understanding and managing your cash flow, you have an opportunity to do something about your future.

Need help with our cash flow projections?  LSL can you help take charge, improve, and project your cash flow by starting you at the minimum with an Excel spreadsheet or taking it up a notch to the ProfitCents tool we use. Either way, having better control over your cash flow will help you survive, thrive, and—the most fun of all— grow.

Project Cash Flow.

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