Cash flow planning: Look at the difference
Comparing your actual cash flow to your plan tells you where you are versus where you want to be. It allows you to see where the differences are and why you’re not doing what you want to be doing. Then you can make some proactive (rather than reactive) changes to improve operations.
When developing a cash management plan, you need to know three things:
1. How much cash you will need to run the business.
2. When you will need it.
3. Where you will get it.
Net income and cash flow are very different. You can show a profit on paper and still run out of cash. Cash flow doesn’t necessarily equate to profit and loss.
Balance sheet projections
A forecast balance sheet is a reality check. Projections should focus on the following items:
- cash
- receivables
- accounts payable
- inventory/work in process
- debt and equity.
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