Understanding Cash Flow Projections

What this video covers

Ann McAlhany from the Maine SBDC explains how to build and interpret a 12-month cash flow projection using Excel templates. The presentation walks through separating fixed overhead from variable costs (COGS), tracking the exact timing of cash receipts and disbursements, and accounting for seasonality. The guidance directly applies to startups seeking loan approval and existing small businesses managing seasonal cash swings.

Best for: Startups writing a business plan or preparing a loan application; Seasonal businesses experiencing uneven monthly cash flow; Service, retail, and manufacturing small businesses needing 12-month budget visibility; Entrepreneurs operating hybrid businesses with multiple distinct revenue lines

Chapters

1. 00:00 Welcome and Host Introductions
2. 03:52 Overview of Maine SBDC Services
3. 05:17 Audience Poll: Identifying Business Types
4. 06:34 Workshop Objectives and Agenda
5. 08:06 Purpose of Cash Flow Projections
6. 09:57 Key Concepts: Fixed Costs, Variable Costs, and COGS
7. 12:13 Cash Flow Timing vs. P&L Statements
8. 13:59 Service Business Cash Flow Template Walkthrough
9. 15:16 Estimating Fixed and Overhead Expenses First
10. 17:53 Projecting Seasonal Sales and Cash Receipts
11. 19:27 Production and Retail Template with COGS
12. 23:33 Advising Support and Contact Information
13. 25:07 Live Excel Demonstration: Populating Line Items
14. 28:43 Q&A: Handling Multiple Business Activities

Key points

• 08:24 Cash flow projections should forecast at least 12 months to show a full operational cycle.
• 08:52 Commercial lenders require cash flow projections to evaluate the financial feasibility behind a business plan's narrative.
• 10:14 Fixed costs do not fluctuate in direct proportion to sales volume.
• 10:46 Variable direct costs and cost of goods sold (COGS) rise and fall directly with sales volume.
• 12:53 Cash flow differs from a P&L statement by excluding non-cash depreciation and including full loan principal payments.
• 20:13 Standard retail markup is approximately 100%, meaning product cost is roughly 50% of retail sales price.

Turn it into a project: Build a 12-Month Operating Cash Flow Projection

Assemble a comprehensive monthly cash forecast to test business feasibility, identify cash shortfalls before they occur, and provide lenders with required financial documentation.

Phase 1: Validate Cash Timing and Assumptions

1. 08:24 Extend the spreadsheet across a full 12-month timeline
2. 11:48 Write clear narrative assumptions detailing the basis for each revenue and cost figure
3. 27:02 Review ending monthly cash positions to identify deficit months and evaluate working capital needs

Phase 2: Establish Fixed Overhead and Debt Outflows

1. 15:16 List monthly recurring overhead expenses such as rent, phone, and software subscriptions
2. 17:23 Enter regular debt service payments and planned owner withdrawals
3. 21:24 Schedule non-monthly disbursements into their exact payment months (such as biannual property taxes and annual CPA fees)

Phase 3: Forecast Inflows and Direct Product Costs

1. 17:53 Estimate monthly revenue by sales category to reflect seasonal peaks and slow periods
2. 20:25 Apply a cost of goods sold percentage to calculate inventory replenishment costs for product sales
3. 29:13 Set up separate sub-sheets for distinct operations (e.g. cabin rentals vs. farm produce) and consolidate them

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