A cash flow projection is a statement drawn from information from sales forecasts and the balance sheet that evaluates cash flow in and out of your business and is an estimate of timing and amounts. A cash flow projection identifies trends and patterns that have a direct bearing on your cash flow cycle and can assist you to plan for potential problems. At a basic level, it tells you how much cash your company has available.
It is recommended that cash flow projections be reviewed regularly as cash flow can change in an instant. Business owners are advised to have at least a six-month forecast drawn up that will allow enough time to ascertain cash flow needs and take necessary precautions against impending problems.
Here are a few more good reasons to give your business the best chance of success and draw up a cash flow projection today.
- Remain competitive in an economic downturn
Some businesses manage to tough it out and come out on top of adverse economic conditions. They can do this by having a Business Accountant draw up a strategic cash flow projection that provides vital information on projected incomings and outgoings. Such an understanding helps in managing expenses such as labour costs and how to adjust pricing structures to accommodate for expenses.
- Manage your budgets more effectively
Having a cash flow forecast to refer to allows you to monitor your spending and highlights those weak areas of your business that are a drain on finances. You are then able to take appropriate action and make decisions based on the information provided to you by your accountants’ business cash flow projection.
- Plan for future growth funding needs
If you aim to expand your business but don’t have sufficient capital available to invest, you can put plans in place to source additional finance. You can seek outside investment (a task made easier with a stable cash flow projection to show investors) or devote more time and energy to find new ways to increase revenue.
Interested to know more about a cash flow projection and how it can help your business grow? Speak to one of our Business Management and Advisory Accountants to start exploring your business’ financial future here at Stones Sharp. Contact us.