Cash Flow Projections

Cash flow is the lifeblood of your trades business.

Even strong business ideas fail if the business runs out of cash. A cash flow projection estimates how much money will come into the business and how much will leave over time. It helps answer questions like: will the business have enough cash to operate? When will expenses be highest? When will revenue begin to cover costs? Will additional financing be required? Lenders, investors, and business advisors ask for one before a venture launches — and for good reason.

Cash Flow vs. Profit

Profit measures whether revenue exceeds expenses over a period of time. Cash flow measures when money actually moves in and out of the business. These are not the same thing.

A contractor may complete a $10,000 job in January but not receive payment for 60 days. During those two months the business still needs to cover wages, fuel, materials, insurance, and other expenses. On paper the business is profitable. In reality it may be struggling to pay its bills. Even profitable businesses can fail if cash leaves faster than it arrives.

What a Cash Flow Projection Includes

A typical cash flow projection estimates financial activity month by month across three components.

Cash inflows are money coming into the business: payments from customers, project deposits, loan funding, and investment capital. For most small trades businesses, customer payments are the primary source.

Cash outflows are money leaving the business: materials and supplies, tools and equipment, wages or subcontractor payments, insurance, fuel, rent, and marketing. Many of these expenses must be paid before revenue is collected.

The cash balance shows how much money the business has available at the end of each month:

Starting Cash + Cash Inflows − Cash Outflows = Ending Cash Balance

The ending balance becomes the starting balance for the following month. This allows entrepreneurs to see whether their cash position is growing, shrinking, or heading toward zero.

Door Opening Costs

Before a business can begin operating there are often one-time expenses required just to get started. These are called door opening costs and they typically appear early in a cash flow projection before significant revenue begins to flow. For a trades business they might include tools and equipment, a work vehicle, licensing and permits, insurance setup, branding and marketing materials, and a website. The amount varies significantly depending on the trade and scale of the operation.

Working Capital

A cash flow projection also reveals working capital requirements. Working capital is the cash a business needs to cover ongoing expenses while waiting for revenue to arrive. A contractor may purchase materials for a project in January but not receive payment until March. During that gap the business still needs to pay for fuel, subcontractors, insurance, and administration.

Many new entrepreneurs underestimate how much working capital they need, which is one of the most common reasons businesses struggle in their early months. The projection reveals this gap in advance, when there is still time to plan for it.

Cash Flow Is Often Lumpy

Cash flow rarely looks smooth or even. Large payments arrive in one month while expenses accumulate in another. Experienced entrepreneurs often describe this as normal — lumpy cash flow usually means projects are progressing and revenue is arriving in cycles. The goal of a projection is not to make the numbers look smooth. It is to understand when cash enters and leaves so you can plan for the gaps.

Watch

Listen

Reflect

If your business completed its first big project in month two but did not collect payment until month four, how would that affect your ability to operate? What would you do to cover costs during that gap? Could you predict right now whether your business would have enough cash to cover its costs in month three of operation — and what information would you need to find out?