About Cash Flow Projection and Cash Flow Statements

One of the most important things you can do in finding cash for your business is to write a business plan.

The Cash Flow Projection

The business plan should have a section on cash flow projection. If your business is established and you're looking to grow, then you'll want to include a cash flow statement. Whether you need working capital, having this information can prove valuable in managing your business' finances.

The cash flow projection looks to the future. It estimates how much cash you expect to flow in and flow out of your business. This is important in cash management so you know when your expenses are too high and you don't have enough cash to cover it. Or watch out for times when you have extra cash on hand for investing in a short-term program or put it back in the business so you can grow.

For loans, the cash flow projection tells the lender whether your business is a good credit risk or a bad credit risk. The projection also tells the story of whether your business will have cash available to handle a line of credit or some other loan. As for how far you should project, most financial organizations would like to see a monthly projection over a one-year period.

The Cash Flow Statement

The cash flow statement, sometimes called the statement of cash flows, looks in the past for cash income and expenditures for a set period. This statement helps you identify trends of when your business is low and high on cash or low and high on expenses. Study the statement to see if you can cut expenses at times when you're low on cash or move things around so your cash flow stays balanced.

The cash flow statement is one of the more important financial statements in a business. The important financial statements are the balance sheet and income statement. For some businesses, it might also be stockholders' equity.

What is Cash Flow? Cash flow contains three major parts and all appear in the cash flow statement:

• Operations: Cash generated from business operations including sales from products and services, payroll, vendor payments, rent payments, utility payments and tax payments. From an accounting perspective, this includes accounts receivables, depreciation, inventory and accounts payable.
• Investing: Cash generated from short-term and long-term investments. This also reflects purchase and sales of property, plant, equipment, stocks and securities.
• Financing: Cash flow related to business debt and financing including loans, notes and lines of credit as well as payments and repayments of loans and debts. This part also includes cash received from issuing stock or equity along with dividend payments, stock purchases and returns of capital.

This Cash Flow Statement example shows all of these parts. Wish you could predict your business' cash future? You can do it with a Cash Flow Statement. Having these two tools will help you better manage your cash flow and have the support you need to get loans, lines of credit or cash from factoring.