How can cash flow projection help a business? Is your cash flow projection well reflecting your company cash situation?

What is Cash Flow Projection

Cash flow projection is an excellent tool for predicting the flow of money in and out of a business.

How it helps a business

Creating a basic cash flow projection can assist a business to see if a financial feast or famine exists. It is a guide to help you and your business during difficult times. It can be not only used for internal purposes, but to convince the outsiders where your business is going. Shareholders tend to focus on long term return. They commonly use Debt-to-equity ratio in evaluating a business’s long-term financial policies. A high debt-equity ratio can be good if it shows that a firm can service its debt obligations through cash flow.

Tips to ensure it is well reflecting your cash situation

There are two ways in preparing cash flow projection, direct and indirect methods. The former can be predicted without any past financial information unlike the latter, which is heavily relied on the past records.

Here are some tips to share with you:

1. To make the cash flow projection as comprehensive as possible.

The word “comprehensive” here means to include as much details as you can, no matter how small the expenses are. For instance, costs incurred to hire new staffs, staff training and etc.

2. To make the predictions more realistic.

Taking in the consideration of credit terms for sales and payment terms for purchases are the examples. What is the average rent increase per year, by percentage?

3. To compare your past estimations with the reality.

This action can help you to understand where your forecast is going wrong and to make necessary adjustments. For instance, any variable costs that happened in the past might cost you in the future as well.

Last but not least


Cash flows and profits are both common parameters used to determine how successful a business is. Yet, a profitable company may not have a good cash flow management. Profit is the money a business makes after accounting for all expenses. Well, it is not necessary to be received at the point the profit is recognised. Money could flow in afterwards.

Having an adequate cash flow is a challenging task every business may struggle with. If you have any further queries, please feel free to contact us.