The word ‘cashflow’ gets thrown around a lot when it comes to your finances.
The basic understanding of cashflow is the money coming in and going out of your business. But when discussing projections, you should start looking at the bigger picture with cashflow projections.
If you’re unsure what cashflow projections are and how they can benefit your business, don’t worry — this article will explain everything in detail.
What is a cashflow projection?
A cashflow projection is a breakdown of the money that is expected to come in and out of your business, usually monthly but you can do it on an annual basis, too.
As such, a cashflow projection makes up part of your essential financial documents — it will be a crucuial part of your business plan.
If you’ve been up and running for a while, a projection will be much easier to put together. You do this by analysing your previous weeks, months or years of trade to find your average income and expenditure.
You can use these trends to predict your future cashflow (within reason, business is changeable at the best of times). For example, depending on your industry, you might have certain seasons of the year where you see an uptick in business.
But you may ask: “Why are these projections important, and why should I use them?”. Well, we’ll give you some reasons why.
Saving for a rainy day
Not only will your cashflow projections help you identify times in the year when you may be busy in the year, they’ll also flag periods when things may slow down.
During the build-up to these quieter seasons, you can focus on maximising your income rather than spending. You could order fewer supplies, cut down on overtime or push higher-value services. The more you can make and save back, the easier it’ll be to cope with the slowdown.
Also, if something unexpected happens — such as a staff member leaving, or a workplace emergency — you have a safety net to prop you up when you need it most.
Plan your tax payments
You can’t predict your business’s ebb and flow with 100% accuracy, but projections will give you some financial insight. Using this insight, you can guesstimate your income and plan how to use the money.
We heavily recommend you use your projections to help with your tax planning. You’ll already know your annual payment deadlines — be they VAT or income tax. So, allocating some funds for them in advance will stop you from panicking over finding the money to meet your liabilities.
Identify investment opportunities
While cashflow projections can largely be helpful for your legal obligations, you can also use them to further your own success.
Having some idea of how much money you’ll have at your disposal will allow you to look into ways to push your business forward (if that’s what you aim to do).
Some ways you could do this include:
- employing more staff to help deliver a wider range of services
- buying new equipment
- expanding your property portfolio.
The more you can afford to reinvest in your business, the higher your income potential will be.
So where do I begin?
With all of the benefits cashflow projections can provide your business, there’s no time like the present to get the ball rolling.
Creating your first lot of projections, especially if you’re just starting out, can be tricky, so if you need a helping hand, we can be there to advise you.
For more information about cashflow projections and how to put yours together, get in touch with our team.