Cash flow problems can catch anyone by surprise. An unexpected bill or less money in the bank than expected is enough to make anyone nervous – particularly these days when money is a commodity to be borrowed at high interest rates.
Keeping an eye on cash flow becomes even more important when you’re running a small or medium-sized enterprise (SME), but that’s not to say that the practice should be neglected in long-established businesses.
Projecting cash flow
Cash projection is the key to good cash flow management. Accounting for when there will be money in the bank means owners can plan for how much to spend.
Companies that have existed for a long time will have the edge when it comes to planning their finances. They will know when it is sensible to invest in a new product line, and can be confident that they won’t find themselves running out of money in the middle of a new project. But clever start-ups can take advantage of this knowledge as well – a little research about their chosen industry is all it takes.
Small businesses using their financial projections will find a number of benefits, aside from the fact that their organisation is likely to still be running next week.
Banks and other lenders like to see a good cash flow when deciding who to lend to and how much. It shows good control over your finances and reassures them that they’ll get their money back.
A good financial projection also means that firms can avoid incurring expensive overdraft charges or unexpected credit card bills, or missing important payments such as rent and supply costs.