Cash Flow Reality and Misconceptions

Is the company experiencing financial anxiety? According to a U. S. Bank research, 82 percent of business disappointments are due to poor cash management. In the current economic environment cash management has become even more critical for the life of little companies. According to various research agencies, the companies that are successfully surviving have been exerting control over their cash flow plus costs.

Financial experts consistently concur that financial projections and money planning are the most important financial preparing tools for a business. That said, cash planning is the least intuitive of the financial management tools, and therefore the the majority of challenging.
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And yet, nobody is more skilled than a business owner to forecast the cash for his/her business. The notion that will only a financial expert can produce income projections is erroneous. Think about it, the normal accountant is focused on the balance page and profit & loss statement (historical information) because their primary responsibility to their clients is to create the tax returns at the end of the year. The normal bookkeeper is focused on the basic construction necessary to keep the accountant happy, as well as the books in order. Of course there are conditions to the “typical”, and these individuals needs to be applauded.

Correcting some common myths about cash and cash flow planning:

“We are profitable. ”

Great, but profits are an accounting idea and have no direct relationship to cash flow. Profits are on paper. Money is what you spend, and payments you might have actually received, i. e. it is what you have “in the bank”.
“Our accounts receivable is solid. ”

Again fantastic, but receivables have no direct relationship to income since it has no designated timeframe. Receivables (e. g. invoices) is not money. It is the intent of your customers to pay for at some future date. Receivables is just not cash until it is in hand.
“We don’t have the time to do a plan. inch

The busier your company is, the greater your company needs to plan. Financial projections do not have to take hours or days.
“We’re not big enough to require cash flow projections”.

Not true. In reality, it does not take smaller businesses who do not have deep pockets that need financial planning probably the most. These are the companies most at risk when accounts payable gets ahead of money on hand, or when long-term growth/acquisitions expenses out strip short-term income.
“It is too complex for the average business person to produce. ”

Not true. This is a matter of making good and practical estimates about what you are going to be marketing and when, what it will cost and when, and what and when your expenses will be, i actually. e. money-in and when vs money-out and when. There are tools to help with this particular process.
“We do the financial projections in our heads. ”

Unless your business has just one customer, and only a small number of expenses and cost-of-goods categories, it is unrealistic to believe that a business person may juggle all the variables in his head.
“We do our cash flow projections once a year when we do our budget. ”

The thought process behind this statement defies logic. Do you just check your bank account once a year? Ideally, a cash flow projection should be done every time A/P is processed (e. g. bank checks cut), or at the very least once a month.
“We look at our income statements plus balance sheet every month. ”

Nor the income statement nor the total amount sheet is sufficient to plan and manage cash. These reports are usually historic, they are not future facing.
“Our books are accrual-based, so we don’t need cash flow projections. ”

Incorrect. Accrual-based or cash-based accounting is about how your company handles sales and expenses, primarily for tax reasons. Your accounting method has no keeping on cash projections which cope with the future timing of cash-in plus cash-out for your company.
“We’re OKAY since we regularly produce an Income Statement. ”

Not true. Do not confuse a Cash Flow Statement with an Income Projection. The Cash Flow Statement shows how cash has flowed in and out of your business in the past. The Cash Flow Projection shows the cash situation during time in the future.
“Our invoices are due upon receipt, so we have a tendency need financial projections. ”

Incorrect. Keep in mind, growth/acquisitions (e. g. expanding business hours, new product lines or support, new staff, etc . ) or changes in vendor payments (e. g. acceleration of payment plan, increase in cost, etc . ) plus expenses (e. g. rate boosts, additional services, etc . ) could have a dramatic impact on your cash flow.
There are several ways to do a cash flow projection. If you talk to financial experts both may have their preferred method plus terminology. However , you do not have to defer to a financial specialist to get your monetary projects done in a rather painless manner. ezTRUNNION LLC has developed a cash flow projection and cash management tool that is integrated with QuickBooks(R), the most famous accounting package for small businesses. CASH Cop(TM) has enough flexibility built into the tool to allow companies to produce cash flow projections that suite their situation and needs. Because the tool focuses only on cash flow projections and cash management the price point is affordable for small businesses.

There are other products available that also do cash flow projections. Free Excel(R) templates are available from a variety of resources, which includes SCORE. These templates require the user to manually enter all information, and personally keep them up to date. Because of the time needed to acquire the necessary information and then crucial it in, users typically turn out to be discouraged about producing cash flow projections on a regular basis.

There are also financial planning tools, available for a price, that have a host of reports, graphs, and tools integrated into one particular application. These types of tools fall into one of two categories: stand-alone or integrated. The stand-alone financial planning tools still require the collection and keying-in of essential data, but these equipment are affordable to a small business, plus product a variety of reports and charts. These tools vary in their “friendliness” in order to layman users. Check them out before buying. The integrated financial preparing tools can pull necessary info from specified accounting systems (very few integrate with QuickBooks), require tools tend to be more expensive, providing reviews, graphs and other financial tools geared to larger businesses. Be sure you understand the prices (e. g. monthly service cost or one-time purchase) before buying.

In summary, there is no substitute for cash projections. Any small business can take control of their monetary future by utilizing this essential monetary planning tool. There are a variety of items on the market that will enable a business to produce their own financial projections without necessarily engaging a financial specialist. A business need only determine their cost constraints (price of the product) and time requirements (time required to learn and use the product) for a cfinancial projection device, and then acquire the tool that rooms their needs. Commitment to frequently producing and reviewing cash flow projections is essential to the financial success plus survival of every business.