Comparing your monthly income to your past or projected cash balances is an excellent way to see the differences in timing between the two. Some businesses collect cash days or weeks after a sale. If you know that good deals often regularly occur during a certain part of the year, you can adjust your cash flows to be ready to capture those deals.Ĭash inflows and outflows rarely match the timing of revenues and expensesĬash for inventory or manufacturing staff payroll can be spent well before you record the cost of goods expense at the time of sale. This lets you know when you can start looking for deals on these investments. Your projection tells you when you will be able to make major investments like equipment. This helps with your personal financial planning. Plan out ownership equity distributionsĪ good cash flow projection for your company allows you to plan your equity distributions. The projection makes sure you have enough cash built up to cover those lean months. This causes months where cash exceeds expenses and other months where the cash coming in the door doesn’t cover the expenses. At the same time, their expenses may be more evenly spread throughout the year. Many businesses have a pattern of high cash inflows during certain months of the year and low cash inflows during other parts. Match cash outflows to the seasonality of inflows Be ready to pay your taxes on time to avoid unnecessary penalties. It’s not uncommon for bankers to see companies that are making sales but don’t have enough cash to pay the taxes on those sales. This means you may need additional cash from lenders or owners. The projection may say that operational cash flows will not be enough to fund opportunities for investment and growth. Identify the need to get a loan or a capital infusion
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