Cash flow projections

A cash flow statement is a critical tool for analyzing the current liquidity of any business venture. Cash Flow Projections are even more important as they help you understand not only your current liquidity, but also your probable cash flow position in the months and years to come.

Some people believe that cash flow projections and profits are one and the same thing. But that is very far from the truth. Unless you deal only in cash and have no assets , cash flow and profit and loss statement will have multiple divergences.

This is because all revenue segments and expenses considered while calculating the profits of the business might not necessarily be paid or received in cash. Profit and loss also considers non-cash items like depreciation and amortization. Profit and loss projections have a different purpose than cash flow projections, and serve a different finance functionality.

A cash flow statement is a summary of transactions representing inflows and outflows of cash over a period of time. A cash flow statement also breaks up the flow of cash into operating, financing, and investing activities for a more granular view.

Positive cash flow indicates a sound position for your company and demonstrates your ability to pay a robust return to its stakeholders.

Inflows

Inflows represent the amount of cash received from the:

Sale of goods or provision of services

Amount received from debtors or account receivables

Amount of money being invested by investors

Amount of loans received from banks, financial institutions, and other lenders

Interest or any other income received

Amount of cash received from the sale of fixed assets

Outflows

Cash outflows represent the amount of money spent on:

Recurring and non-recurring expenses of the business

The cost of goods sold

The payment of interest on loans

The dividend payment

The number of loans repaid

The cash payment to creditors, accounts payables, or suppliers of material

The amount paid for purchases of fixed assets.

🙋‍♀️ Note: Cash flow projection is a statement showcasing the expected amount of money to be received into, or paid out of, the business over a period of time.

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