Doing business in these economically trying times is a challenge. Today we point out 5 reasons for cash flow projections.
Cash Flow Projections Make Good Business
Not only has getting funding and signing up new customers become more competitive but staying cash flow positive requires a bit more planning. Having a good idea where you are going with your business is important. So, here are our reasons why having good cash flow projections makes for good business.
5 Reasons for Cashflow Projections
As a director or owner of a business, or as a board member of a non-profit organisation, you have a legal responsibility.
You must ensure the business is not trading while insolvent.
The only way you can be sure of this is to project your future cash flows and predict your bank balance. Even if you’re not experienced in financial reporting, a good cashflow forecast chart is very easy to understand. Above all, it will clearly show if your predicted bank balance is heading close to, or below, zero. Knowing this will enable you to take charge of the situation while you have time to influence the outcome.
When planning future changes to your business, you need to understand the financial impact of your strategic changes.
- Do you have sufficient funds?
- Will you have them at the right time?
A cash flow projection will give you the information you need to make informed decisions. Have a look at our Step by Step Cash Flow Projection Checklist.
And sometimes, especially when things are tight or unpredictable, it makes sense to forecast more than one scenario. This will help you evaluate different options and make better decisions.
3. Finance and Funding
When you approach your bank for a loan, provide them with a cash flow projection before they ask for it. This is a really easy way to demonstrate some key ingredients that make you a good prospect:
- It demonstrates that you have a plan to repay the loan
- And, that you are proactive and in control of your business.
Growing businesses are particularly prone to cash flow problems. You want to reinvest everything you earn into growing the business but it’s important to look ahead and forecast what’s needed and what is prudent to spend. Read our blog on How to Manage Your Cash Flow for Growth.
5. Managing the Business
If your business has seasonal fluctuations, it’s vital that you manage your cash flows. There are various scenarios that can get you unstuck, like:
- While your sales are varying in one cycle, the timing of your purchases is likely to vary differently.
- You need to purchase stock before the busy periods and often need to pay for it before it has been sold.
Using cash flow projection software will allow you to plan your cash needs and avoid surprises. If you need to improve your cash flow, there are many ways to do that. Our guest article 23 Ways To Improve Cash Flow by Tracey Loubster can get you started on better managing your cash flow.
Cashflow Forecast Software
So here are our 5 reasons for cashflow projections. Calxa Express is the ideal software to use for small business cash flow forecasts. Larger businesses and Not-for-Profits with more complex needs, will probably find Calxa Premier more suitable. If you’re not sure which to choose, you can find a comparison of the two products in this article Evaluating Calxa.
If you need advice on cash flow projections we recommend you speak to your accountant or one of our Accredited Partners.