How to Build a Cash Flow Projection From a Clean Ledger

A cash flow projection answers one question: will the money be there when we need it? It is not a budget and not a forecast of profit. It is a week-by-week or month-by-month map of cash in and cash out, built on top of a ledger you already trust. If the books behind it are stale or unreconciled, the projection is fiction with a spreadsheet wrapped around it.

What a projection needs from the ledger first

Before you build anything, close the loop on the past. Bank and credit card accounts should be reconciled through the latest statement. Bills, payments and deposits should all be entered, including anything sitting in the physical inbox. Payroll liabilities should be posted, not just accrued roughly in your head.

The projection starts from a beginning cash balance. That balance is only as good as the reconciliation behind it. This is one more reason the month-end close matters: the close produces the verified opening number the projection depends on.

Choose the horizon and the buckets

Pick a horizon that matches the decision at hand. Thirteen weeks is the classic working-capital view. Twelve months suits planning and lender conversations. A daily or weekly grid over the next four to eight weeks suits a tight patch, where the question is whether Friday's payroll clears.

Then set the time buckets: weeks for the near term, months once you pass a quarter. Short buckets early, wider buckets later, because near-term accuracy is what keeps the projection credible.

Forecast receipts honestly

Start with receivables. Age the open invoices and apply realistic collection timing, not invoice terms. If history says customers pay at 45 days against 30-day terms, use 45. A projection built on contractual terms will flatter the cash position every single time.

Add other inflows: recurring revenue, owner injections, loan draws, tax refunds. Mark anything uncertain as such, or leave it out and note the omission. Better an honest low number than a hopeful one.

Forecast payments in order of severity

List outflows by how inflexible they are. Payroll and payroll remittances first, then rent and loan payments, then suppliers whose terms you depend on, then everything else. For each, ask two questions: when does it actually leave the bank, and is the amount known?

Enter bills already in the ledger using their due dates. For recurring items without a bill yet, use the trailing average. For irregular items like insurance renewals or taxes, drop them into the specific week they fall due. The lumpy, forgotten payment is what sinks most projections, so build a calendar of known irregular outflows before you finish.

Build in the timing gap

The commonest projection error is matching revenue to its costs in the same week. Cash rarely moves that way. Customers pay late, suppliers are paid on their cycle, payroll lags the work it pays for. Model the lag explicitly: receipts based on collection history, payments based on due dates and payment runs, not on when the activity happened.

Reconcile the projection against the ledger every period

A projection is not a document; it is a habit. Each week or month, compare what actually hit the bank against what you projected. Note the variances and update the assumptions. If collections ran ten days late for two months running, change the assumption, not just this month's numbers.

Keep a simple variance column. It tells you which assumptions are drifting, and it gives the projection a track record, which is what earns it a seat at the owner's table.

Turn it into something a non-accountant can act on

The output should be one page: projected opening balance, receipts, payments, closing balance, and the lowest point in the period. Highlight the weeks where the closing balance dips near the floor. That low point, not the ending balance, is the number that drives decisions: whether to delay a purchase, draw on a line of credit, or push collections harder.

Where the projection stops being bookkeeping

Building and maintaining the projection is squarely bookkeeping work, and a good set of working papers makes it defensible. Advising on financing options or restructuring is advisory work beyond the ledger. But the projection itself, built on reconciled books and honest timing assumptions, is one of the most useful things a clean set of books can produce.