Cash flow is a major headache for many businesses– if a business runs out of cash and is unable to get any funding, it will become insolvent.
A business owner that focuses on profit and ignores cash flow is at higher risk of failure – by calculating your projected cash flow, you can stay in business while you wait for the profits to become reality.
Accurate and timely cash flow projections are vitally important to businesses as:
- it gives your business the boost it needs to accelerate growth;
- you can ensure suppliers and employees are paid on time;
- a cash flow projection can help identify the need for external funding well in advance;if you have an accurate cash flow projection, you are more likely to impress banks, investors and other external stakeholders.
With a cash flow projection you can:
- Manage and predict future cash flow requirements instead of looking backwards at historic information. Compare your income and expenses so you can identify which areas of your business you need to focus time and effort on.
- Budget for equipment purchases or identify the need for a business loan.
- Predict the effects of planned business changes such as the costs of hiring new staff, winning new contracts or planned price increases.
Most businesses are likely to have fixed and variable costs, which will need to be included in the cash flow projection:
- Fixed costs – these are costs that do not fluctuate with changes in production activity or sales volume such as rent, salaries and overheads.
- Variable costs – these are costs that change in proportion to sales or production output such as purchases of goods and carriage.
Conclusion
A cash flow projection is a very useful business planning tool which enables you to predict how much cash you will have in the future – you will also have the historical data to back up and inform any future business decisions.
With our dedicated business advisory services, we can help you create a sustainable and scalable cash flow projection to ensure your business stays on track in the future – please contact Lee Sugden on 0161 761 5231 or email theteam@horsfield-smith.co.uk.
