Cash Flow and Projections

A business plan for a startup should include financial projections for the first three years of the business including an income statement, balance sheet, cash flow for the first twelve months, and a capital expenditure budget. This is also known as a pro forma. The projections of sales, expenses, and profits must be based on realistic market research and reasonable assumptions.

Cash Flow

Once money is borrowed, debt obligations are paid with cash. To meet monthly expenses and debt service payments, the company must continually replenish its cash balances. This is cash flow.

The three uses of cash in any company are:

  • Permanent working capital
  • Capital Expenditures
  • Repayment of an obligation

An analysis of business financial statements and projections will look at whether cash flow is sufficient to provide for all competing uses of cash over time.


Projections are estimates of future sales and revenues based on:

  • Historical performance
  • Knowledge of the company, trends, and goals
  • Estimates of how new funding will change the sales/revenues of the company.

In a startup, projections are based on assumptions of the performance of the new company, knowledge and trends in the industry, and the market.

Projections are very useful tools for decision making and should be completed with a high degree of accuracy and thought of the existing or new company's future.

Lenders will analyze the projections to determine if the cash flow can support the debt service. If the cash flow is not sufficient, the borrower can lower the amount of the loan request or the lender can be asked to consider a longer term/amortization or lower interest rate assuming the collateral is sufficient.