David Rewcastle, Darien, CT has been a security analyst in numerous industry sectors, originally with a concentration in Energy and Utilities for nearly two decades. He knows small business owners have one of the most valuable tools: a cash flow projection. A cash flow projection is a tool that helps you plan for the future. It projects how much cash your business has.
Business ownership comes with its fair share of rewards and risks. Running low on cash is one of the most significant risks. It is possible to reduce that risk by managing your cash flow well.
Cash flow projections are therefore so important. A cash flow projection will help you make better business decisions. You can reduce unnecessary expenses if your expenses are expected to rise in the coming month. You might also consider buying a new laptop if your cash flow forecast is higher in the next month.
In this article, David Rewcastle explains cash flow projection and how it can benefit your business.
What is a cash flow projection?
A cash flow projection is a way to estimate the cash you expect to bring into your business and out. A cash flow projection, also known as a forecast or cash flow, can be made for any time period. Some small businesses create a weekly cash flow projection. Although 12-month projections are common, they should be adjusted as expenses and revenues change throughout the year.
Business owners can have a clear view of their cash flow projections to see how much money is coming in and going out. Your projected cash flow will help you make business decisions and let you know if there is a cash shortage.
A cash flow projection has many benefits. There are a few downsides. A basic cash flow projection takes less than an hour once you are comfortable with it.
A lot of small business accounting software applications are capable of preparing a basic cash flow statement. However, this only covers historical information and does not cover future cash flows.
Check out these benefits if you are still not convinced about the merits of creating a cash flow projection.
Cash Shortages: Plan and Identify
Cash forecasting is an important part of a company’s financial health. Businesses often have little room for error, as we saw with COVID-19’s impact and the recent economic uncertainty. A cash forecast is a tool that can help your business avoid missing payments and anticipate cash shortages.
“Businesses can use cash flow forecasts to plan for corrective actions such as fine-tuning payment collection strategies and liquidating assets or reaching out to lenders.” David Rewcastle stated. “Forecasts are able to help you predict the surplus and reduce the negative impact of cash shortages.”
Controlling spending helps
Owning a business means spending money. There’s a right time and a wrong time to spend money. You should also limit your expenses. Both of these times can be pinpointed by a cash flow projection.
Potential problem areas are highlighted
A cash flow projection is a way to see how much cash isn’t flowing into your business. This can help you identify months and categories in which expenses are higher than expected. This information can be used to identify potential problems before they become serious. If you are familiar with cash ratios and free money flow, then a cash flow projection is a great basis for calculating your cash coverage.
Correctly allocate cash surplus
A lot of cash in limbo is not a good thing for businesses. Forecasts are a great way to identify potential surpluses and help cash managers allocate cash more efficiently. It doesn’t matter if businesses invest in excess cash or use it to gain a competitive advantage. Businesses must leverage forecasts to put the surplus cash to good use. Scenario planning is a tool that can be used to forecast the effects of certain investments and decisions.
All businesses should have cash flow projections
A cash flow projection, regardless of whether you are a sole proprietor providing energy services or a small manufacturer who sells home goods can help you manage your business better, plan for cash shortages and eliminate unneeded expenses when cash is tight. It’s time to implement a cash flow projection for your business.
About David Rewcastle
David Rewcastle is an Equity and Fixed Income Analyst with a background in Finance, Economics, and Middle East Studies. David has been a security analyst in numerous industry sectors, originally with a concentration in Energy and Utilities for nearly two decades; receiving numerous accolades for stock picking returns and earnings estimate accuracy. David won the Wall Street Journal’s “Best On The Street” award for portfolio performance in the Oilfield Services Sector, has been awarded the top-ranked stock picker for the Gas Utility Sector by Starmine/Forbes Magazine, and Starmine/Financial Times rated David as the #3 analyst/stockpicker in the US Gas Utility sector.
To learn more about David Rewcastle, Darien, CT, visit his official website.
