Cash flow projection problems can catch anyone by surprise. An unexpected bill or less money in the bank than expected is enough to make anyone nervous – particularly these days when money is a commodity to be borrowed at high interest rates.
Keeping an eye on cash flow becomes even more important when you’re running a small or medium-sized enterprise (SME), but that’s not to say that the practice should be neglected in long-established businesses.
Cash flow projection
Cash flow projection is the key to good cash flow management. Accounting for when there will be money in the bank means owners can plan for how much to spend. It is especially crucial for SMEs as it provides a clear forecast of future financial positions, helping to ensure they have sufficient funds to meet obligations and avoid cash shortages. By anticipating cash inflows and outflows, SMEs can make informed decisions about investments, expenditures, and resource allocation.
Companies that have existed for a long time will have the edge when it comes to planning their finances. They will know when it is sensible to invest in a new product line, and can be confident that they won’t find themselves running out of money in the middle of a new project. But clever start-ups can take advantage of this knowledge as well – a little research about their chosen industry is all it takes.
Benefits
Small businesses using their financial projections will find a number of benefits, aside from the fact that their organisation is likely to still be running next week. This proactive financial planning aids in identifying potential cash flow problems early, allowing businesses to implement strategies to mitigate risks.
Banks and other lenders like to see a good cash flow when deciding who to lend to and how much. It shows good control over your finances and reassures them that they’ll get their money back.
Good cash flow management can also enhance relationships with stakeholders, such as lenders and investors, by demonstrating financial stability and planning, ultimately supporting business growth and sustainability.
A good financial projection also means that firms can avoid incurring expensive overdraft charges or unexpected credit card bills, or missing important payments such as rent and supply costs.
