Cash Flow Projections

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					Cash Flow Projections
When you're starting a new business or taking you business in a new
direction, its always a good idea to prepare a cash flow projection for
your new endeavor. Preparing a cash flow projection is a good way of
preparing your businesses for the things that might come its way in the
future. If done properly, you can actually reduce the number of
unforeseen monetary events that happen within your planning horizon. Here
we take a look at some of the factors that you should consider in
building your cash flow projection.
For a new business seeking finance from investors , financial
institutions or the government, an accurate cash flow will certainly be a
crucial component of the business plans required by these organizations.
Its therefore important that before you start drafting a cash flow
projection, you should do some research on the costs and income you're
likely to be dealing with. To research your likely costs, you might
consider simulating the running your business based on your knowledge of
that business which might come from having worked for another business in
the same industry. This simulated trial run could be replaced with an
actual, limited scope trial run, that is actually operating the business
for a short period to see how things actually work. Beware though, there
might be regulatory reasons for not actually running the business till
you have everything in place, including finance and a cash flow
projection. Regulatory restrictions include licensing, tax reporting,
association membership, government
After doing your research , you would then need to either hire a
professional to prepare the computations based on sound accounting
principles or prepare the projections yourself if you believe you have
the required knowledge.
Ideally, a cash flow projection will be a full, monetary model of your
business. To this end three elements it must have are the projections for
cashbook, profit and loss account and Balance sheet.
If you are not familiar with these terms, then it would be best for you
to get your cash flow projection prepared by a professional. Where your
cash flow projection is being prepared by professional advisers, they
will require your researched estimates.
Cashbook projection
This is usually a recording of expected incoming and out going cash. The
cashbook projection will usually be based on daily or monthly expected
cash transactions.Outgoings will involve predicting bills, wages, rates
and taxes to be paid, and incoming cash will involve predicting cash
sales, receipts from debtors, monies received from investors, and other
sundry income.
Profit and Loss projection
At a basic level, this is a collation of all your projected trading
income and trading expenses, collated for a trading period such as one
year. So you make estimates of expense such as rent, electricity,
licenses, subscriptions, advertising based on your knowledge of the
business and your research. You will also need to be able to quantify you
expected business income in terms of sales figures such as products sold
or services rendered, and at what price.
Balance sheet projection
This can be regard as a monetary snapshot of your business, at a defined
moment in time. Thus on one statement, you would have the value of your
unsold products, your bank balances, cash in the till, debtors who owe
you money, unpaid suppliers and other creditors, the monies you have
invested into the business.
Cash flow projections would normally be prepared for up to three or five
years in advance, depending on your requirements and their accuracy and
usefulness depend a great deal on the accuracy of your research at the
beginning of the process.
Once your cash flow projection is complete, you may at this point begin
to see how feasible your future plans might be. Insofar as you're
confident of your figures, a well designed cash flow projection can be
the foundation of a strong business plan which inspires confidence in
yourself and your business partners about the potential of your business.
However, its important that as time progresses that your cash flow
projection be revised to incorporate new information as it becomes
Eventually, it will be up to you the business person to work the plan,
and make it happen.
About me
I an accountant by profession, a web entrepreneur and developer at home,
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