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CASHFLOW PROJECTIONS

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Cashflow Projections

What Is Cashflow Projections?

Cash flow forecasting or cash flow management is a key aspect of financial management of a business, planning its future cash requirements to avoid a crisis of liquidity. Cash flow forecasting is important because if a business runs out of cash and is not able to obtain new finance, it will become insolvent.

Why a cash flow forecast is so Important :

Identify potential shortfalls in cash balances in advance—think of the cash flow forecast as an "early warning system". This is, by far, the most important reason for a cash flow forecast.

Make sure that the business can afford to pay suppliers and employees. Suppliers who don't get paid will soon stop supplying the business; it is even worse if employees are not paid on time.

Spot problems with customer payments-preparing the forecast encourages the business to look at how quickly customers are paying their debts. Note-this is not really a problem for businesses (like retailers) that take most of their sales in cash/credit cards at the point of sale.

As an important discipline of financial planning-the cash flow forecast is an important management process, similar to preparing business budgets.

External stakeholders such as banks may require a regular forecast. Certainly, if the business has a bank loan, the bank will want to look at the cash flow forecast at regular intervals.


Let's start with some typical, and straightforward set of assumptions for Cashflow, i.e.:

- Pay each month's expenses in the following month

- Order production materials 4 months before shipping

- Receive production materials 1 month before shipping

- Pay for production materials 1 months after receipt

- Collect payment from our customers 1 months after shipping

- Use subcontractors for production ( i.e. no production employees )

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Cash Flow Projections

Cash Flow Projections

We provide general guidance on Cash Flow Projections.