the future, seize growth opportunities, and make sound business decisions.

Once you have a monthly budget, you may still have questions:

• How much am I making over time?

• Will I have enough cash to pay myself? My bills?

• How much am I really making?

If you have any of these questions, learning about cash flow can help.

The cash flow forecast is one of the best tools you can have for understanding how healthy your organization is right now and in the near future. Predicting cash flow is not about budgeting. It’s about understanding how much money you are taking in minus how much money is going out.

The challenge with cash flow is that you can have a lot of money that’s owed to you, but if you don’t have money on hand to pay the bills, then your business can find itself in financial trouble. Knowing how much cash you have in the short term becomes a way of not only knowing what’s coming in and going out, but also gives you a heads-up about upcoming challenges with having enough cash available

The following cash flow exercise will guide you through the process of making an important cash flow prediction for your business over the next six months. We’ve purposely chosen the six-month time frame because it’s a nice snapshot that allows you to make decisions a few months away, but it’s not so far away that many things could change.

Once you get the hang of this exercise, you will likely want to make it one of your weekly business habits.

Building Cash Flow in 5 Easy Steps

Step 1: Gather Documentation

Pull 2–4 months of documents that show your income and expenses. Here is a list of documents that can give you the information you need.

Documents Showing Income & Expenses

• Bank statements

• Credit card statements

• Venmo transactions

• Utility bills

• Any other records showing ways that you receive or spend money

Try to use actual amounts when possible for greater accuracy. If you don’t have actual amounts for everything, it’s okay to use an average.

Step 2: Pick a Time Frame & Scenarios

This is not a budget. Try to choose a time frame that’s long enough to allow you to make decisions past one or two months, but short enough in case challenges or changes happen down the road. We think six months is a good time frame but adjust as needed and choose what works for you. Never use more than a year.

You should also consider scenario planning, which can help your organization generally, but particularly in times of great uncertainty. Through scenario planning, you can articulate changes that may happen over time so you can see and plan for their potential impacts. Though you can use any number of scenarios, typically it is good to develop three:

1. Best Case — where revenue and expenses shift to ease the stress on your business.

2. Base Case — usually the status quo, if the future plays out as you currently expect it to happen.

3. Worst Case — where revenue and expenses will trend in ways that could happen and would result in a more difficult position for your business.

To build the scenarios, identify the most significant factors and how they may trend in each scenario. Make sure you consider factors that are on the revenue and expense sides. Try to keep to just the most important factors — the 3–5 most likely to change in the future – which could have the most significant impact on your organization.

For example, a potential increase in your vehicle costs by 50% would be a likely factor for your worst-case scenario, whereas a 1% increase in supplies would likely not be included.

Make sure you include a list of the factors — writing them down will make sure you remember how you got to that particular scenario you’ve created. If you can, articulate the cost impact in actual dollars (such as what happens if you get that $10,000 grant) or a percentage (such as a 10% increase to the cost of supplies).

Use the table below to capture your assumptions for each scenario. As you run through the rest of the steps, do one set of tables for each scenario so you can see the impact.

Table 1: Scenarios