Monthly Updates to Your Cash Flow Projection

Money and Couins and Dollar Bills

Each month it’s important to update your Cash Flow Projection with actual figures from the previous month and to review your projected numbers in light of all of the information that you have collected to date. In this post, we’ll look at a step-by-step guide to accurately capturing all of the monthly updates that need to be recorded in your Cash Flow Projection.

Step One: Reconcile Your Bank Statement

The first step is to reconcile your bank statement. This will ensure that you have entered all transactions into your check register. If this important step is one that you’ve been avoiding in previous months, now is the time to make this a priority. You cannot hope to benefit from all of the hard work that you have put into your Cash Flow Projection if you are not sure that includes all of your transactions. Additionally, it is dangerous to forgo the work that goes into properly recording and reconciling your bank transactions in favor of a quick glance at your balance via your bank’s website. If you’ve been managing your cash flow this way it is just a matter of time until something slips through the cracks. Committing to take the time to consistently reconcile your bank statements now will almost certainly save you time, stress, and even money (overdraft charges, late fees, etc.) in the future.

Step Two: Gather Your Data

Once you’ve confirmed that you have accurately captured all of your financial transactions, the second step is to gather all of those transactions in a format that makes it easy to record your data on your Cash Flow Projection. Often, the most efficient way to do this is to run reports from your accounting software. I use QuickBooks for most of my clients and in order to simplify this process, I have saved the appropriate set of reports in my Memorized Report List. Even if you are using another accounting software program, you can use these same reports.

The list of reports I use to update my Cash Flow Projection are as follows:

  • Bank Transaction Report or the Check Register
  • Deposit Detail Report (This will vary depending on how you are tracking your revenue.)
  • Accounts Receivable Aging (If you are a business that bills customers for time and/or products.)

Step Three: Record Your Expenses

The third step is to take your Bank Transaction Report or Check Register and enter the expenses into the various categories you have listed on your Cash Flow Projection. If you have created categories on your Cash Flow Projection that differ from the chart of accounts in your accounting software, take extra care to be sure that you are recording activity from each chart of accounts category into the same Cash Flow Projection categories each month. For example, you may have payments to a number of different vendors which are recorded in the following expense categories on your chart of accounts: Office Supplies, Kitchen Supplies, and Printer & Computer Supplies. Conversely, you may have set up your Cash Flow Projections so that “Office Supplies” includes paper and pens, but also include kitchen supplies, printer and computer supplies, cleaning supplies etc. As long as you record this data consistently from month to month, this is fine and it will not negatively impact the utility of your Cash Flow Projection.

Step Four: Record Your Deposits

Once you have entered all the payments from your Bank Transaction Report or Check Register to your Cash Flow Projection it is time to enter the deposits you have made. The entries you make to your Cash Flow Projection depend on how you are tracking your revenue. If your Cash Flow Projection is detailed by product or by customer then you will want to record the deposits you made in the same manner. You can set up your Deposit Detail Report to organize the breakdown of deposits you received by customer or by the revenue categories you are tracking. Make sure that the report you set up is on a cash basis, as opposed to accrual basis. (For more information on the important differences between accrual and cash basis reporting, reference my blog post: Cash Flow Projection and the Shortcomings of Total Reliance on the Profit & Loss Statement.)

Step Five: Review Your Bottom Line

The fifth step is to look at the bottom line; this is the cash position/ending balance on your Cash Flow Projection. This final calculation should consider all of your actual revenue and expenses for the month and absolutely must match with the ending balance from your Bank Transaction Report. If these numbers do not match, then you will need to identify and correct the discrepancy. It is vitally important that these figures match exactly so that your Cash Flow Projection can accurately provide insight into your current activities and so that the beginning balance for the next month is accurate as well.

Once you have completed these five steps, take the time to review your Cash Flow Projection paying careful attention to the columns with your projections. Have new developments occurred in the business that will impact your projected amounts? (Review my posts on expense projections and revenue projections if you need help identifying items that may change your projections.) If so, don’t be afraid to make those changes on your cash flow projection. Remember this is your working tool and you must have realistic projections entered if it is going to provide any value to you. This is also the time to add one more column to your projections so that you will always have 6 (or 12) months forecasted in order to allow you to look ahead and spot any possible risks to your cash position.

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