A calmer way to look at cash flow this January
If you’ve ever baked anything mildly ambitious, you know one of the most important parts can be the prep.
Pans greased, oven on, ingredients measured, your partner’s growing water bottle collection moved off the counter.. a weird sense of calm knowing you’re ready to finally try that new Lemon Poppyseed Loaf recipe.
And if you were to ask me what work-related task gives me that same oddly relaxed feeling, I’d say cash flow projections. 10000%. Every time.
I know this is nerdy. Stay with me lol.
There has always been something so relaxing, so enjoyable for me about mapping out where a business is going over the next 12 months. Not predicting the future perfectly, but getting the “ingredients on the counter” so nothing sneaks up on you later.
So today I want to take you through exactly what you need to put together your own 12-month cash flow projection.
And I know this might not be the most relaxing task you’ll tackle this month, but done right, it does bring that sort of calm, I'm ready-to-bake energy.
Consider this your mise en place.
Non-negotiables:
1 - Your most recent financial statements (12 or 24 months) - P&L, balance sheet and statement of cash flows. Because past behaviour is the best predictor of future behaviour, especially when it comes to cash inflows and outflows.
2 - Revenue detail - aka how much cash is entering the business and when. Instead of - “we’ll make $500k this quarter”, we’ll bill $300k in mid-Feb which will be collected by mid-March… etc”. As you well know, the invoice date does not = the date cash received and your forecast needs to reflect that.
3 - Fixed operating costs - this is the stuff that typically doesn’t change, year to year, aside from adjustments from inflation. Rent, insurance, debt repayment, salaries/wages, etc. This helps us determine metrics like ‘cash burn floor’ later.
Nice to have:
4 - Variable costs - as in, what costs increase as volume or sales activity increases. I’m talking about marketing (tied to growth), commissions, contractor costs, etc. These should be reasonable assumptions tied to revenue.
5 - Owner compensation - are shareholder / partner draws happening monthly? Quarterly? Are they the same or some base amount plus a bump every-so-often? Cash projections fail when we ignore that you need to be paid. And well.
6 - One time / lumpy items like tax instalments, GST, equipment purchases, legal / acctg fees, partner retreats, conference travel etc.. these can mess up your projections if they’re forgotten.
Also nice to have:
7 - Strategic plan - this can be a fancy multi-tab spreadsheet separated into initiatives, work plans, accountability tracking, etc or this can be as simple as you grabbing a napkin and writing down the answer to “Here’s what I think might happen this year” (as in, are you trying to: grow/hold/shrink, hire anyone, offer new services/products, change prices or cut anything).
8 - Capacity and constraints - this is where you reflect on whether the growth you’re planning on is operationally possible - Does your team have the capacity? Will there be supply chain bottlenecks? Do you have the energy to do XYZ? Because if you’ve baked growth into your cash flow projections but you don’t have the ops (team / processes / capacity) to make the growth happen, something has to change.
You can think of this entire process less as “financial planning” and more as good baking habits. You gather the ingredients first so the rest of the work feels calmer and more intentional. Cash flow projections work the same way.
January is a great time to pull the numbers together, adjust for what’s changed, and see what you’re really working with for the year ahead.
So, here’s to doing the prep now so the rest of the year doesn’t feel like you’re checking the oven every three minutes to make sure your loaf is rising ;)