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What to consider when making cash flow projections

POSTED: 14th March 2013
IN: Guides
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No small and medium-sized enterprise (SME) would survive without a strong cash flow projection to keep them abreast of their incomings and outgoings.

undefinedCash flow is not only about the money coming into the company, but is also about what cash is going out of the organisation, as well as the gap between these two movements.

The last thing a small firm wants to do is run out of money, so it is paramount they carry out a cash flow forecast regularly to ensure they avoid going bust.

As such, the first thing to ask is how much money is in the business right now This is an integral question to ask if a company wants to be successful and overstep the risk of failure.

Remember that a cash flow projection is a guess and not an absolute truth. That way, the company can give it the flexibility it needs to be accurate. 

When thinking about cash flow, look at clients' payment habits and determine who is likely to pay up on time and who will postpone payments for as long as they can.

That way, the SME can gauge where its next pay cheque is likely to come from and how much money is likely to be tied up in late payments.

Next, look at the company's own outgoings. What orders are coming in soon, how much will they cost and is the business going to settle up straight away?

The tighter the SME's finances are, the more precise the cash flow information should be. If the business account is going to have a number of payments processed on the same day, it is crucial there is enough money in the account to avoid going into the red.

Still, a good cash flow forecast will help ensure there is enough cash in the account to handle payments and an accurate projection will leave the SME with enough money in the bank to cover its expenses and hopefully build up some profit. 

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