Cash Flow Reality and Misconceptions

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

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

Correcting some common misconceptions about cash and cash flow preparing:

“We are profitable. ”

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

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

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

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

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

Unless your organization has just one customer, and only a small number of expenses and cost-of-goods categories, it really is unrealistic to believe that a business person can 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, the cash flow projection should be done every time A/P is processed (e. g. checks cut), or at the very least once a month.
“We look at our income statements and balance sheet every month. ”

Neither the income statement nor the balance 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 plus expenses, primarily for tax reasons. Your accounting method has no having on cash projections which handle the future timing of cash-in plus cash-out for your company.
“We’re OKAY since we regularly produce a Cash Flow Statement.
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Not true. Do not befuddle a Cash Flow Statement with an Income Projection. The Cash Flow Statement displays how cash has flowed out and in of your business in the past. The Cash Stream Projection shows the cash situation over a period of time in the future.
“Our invoices are usually due upon receipt, so we have a tendency need financial projections. ”

Not true. Keep in mind, growth/acquisitions (e. g. expanding business hours, new product lines or service, new staff, etc . ) or even changes in vendor payments (e. g. acceleration of payment plan, increase in cost, etc . ) plus expenses (e. g. rate increases, additional services, etc . ) could have a dramatic impact on your cash stream.
There are several ways to do a cash flow discharge. If you talk to financial experts they each may have their preferred method plus terminology. However , you do not have to defer to a financial specialist to get your economic projects done in a rather painless manner. ezTRUNNION LLC has developed an income projection and cash management device 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 own situation and needs. Because the tool focuses only on cash flow projections and cash management the price point is affordable for small businesses.

Additional products available that also perform cash flow projections. Free Excel(R) web templates are available from a variety of resources, including SCORE. These templates require you manually enter all information, and by hand keep them up to date. Because of the time necessary to acquire the necessary information and then essential it in, users typically become discouraged about producing cash flow projections on a regular basis.

There are also financial planning equipment, available for a price, that have a host of reports, graphs, and tools integrated into 1 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), but these tools tend to be more expensive, providing reports, graphs and other financial tools tailored for larger businesses. Be sure you understand the pricing (e. g. monthly service charge or one-time purchase) before buying.