Financial management is one of the most fundamental keys to the growth of any business regardless of size. Financial management makes the difference between success and failure for many businesses. At its core, sound financial management entails the ability to make sound financial plans, as well as financial decisions that ultimately impact the growth of your business.
Creating a cash flow projection is one of the core strategies of sound financial management. For many entrepreneurs, failure to make cash flow projections often exposes the business to cash flow problems down the line. As such, it is imperative for business owners to create a projection that takes into account both positive and negative cash flows. A cash flow is instrumental to a business in the sense that it aids in keeping track and managing cash fluctuations within the period of projection. Accordingly, an effective cash flow projection helps entrepreneurs plot anticipated cash flow positions, as well as shortfalls.
This checklist will delve into the steps and factors to consider when creating a projection of your cash flow.
Part 1 – Setting up Cash Flow Projections
1 Determine the appropriate time frame for your projections
2 Set up expectations for the business
3 Record your cash at hand at the beginning of the projection
4 Include an estimate of your sales
5 Include estimates of your other sources of revenue
6 Set up an estimate of expected expenses
7 Distinguish between regular and seasonal expenses
8 Check that your cash flow is updated regularly
9 Always document the available total cash
Part 2 – Managing your Cash Flows
10 Set up appropriate payment terms
11 Create a cash flow statement
12 Keep track of your cash receipts
13 Be realistic about your sales estimates
14 Consider setting aside money as a buffer
15 Consider planning for increased tax rates
16 Always anticipate annual and quarterly bills
17 Use the cash flow to make decisions that are data driven
Notes:
- Ensure that your cash flow is not presumptuous regarding payments
- Always compare your projections to the actual results to identify changes, long-term cycles and patterns
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