So let’s look then at a cash flow projection that unites these two other statements. In this case we’re going to do a direct cash flow, but remember there’s also an indirect cash flow method, and there are experts who insist on one or the other, even though you can really do it either way.

So please follow along with me as I go through the cash flow by sections. We start at the top with things that bring in money, meaning cash received. That includes both cash from sales, and cash from other things like borrowing and new investment. You see the example here:

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Cash sales is pretty obvious. It’s the same number that was on the income statement. Remember, that’s not really just coins and bills, that’s also payments by check, and by credit card. In business planning, cash means money in the bank.

Cash from receivables can be confusing at first, but what we see is the way receivables hit your cash flow. When you compare this table with that income statement we just looked at, notice what happens to cash from receivables. The $230 we get as cash from receivables in March is just about the same $228 you made in sales on credit in January. I hope you’re guessing that this is because we’re estimating 60 days on average waiting for our money. Difference between $228 and $230 is the difference between 60 days and two months. That’s a very slight difference.

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Tim BerryTim Berry
Tim Berry

Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.