A good business requires good cash flow to run their operations successfully. Cash flow is the inflows and outflows of cash in the organization within the financial year. It helps the business to run its day to day operations like giving salary and wages to their employees as well as paying the daily expenses and bearing some small abnormal loses. Nowadays, most of the small scale companies have to stop their operations and closed their businesses due to the insufficiency of the cash flow and cash on hand.
A good cash flow projection gives fruitful results to the business. It removes the hurdle from the way to achieve growth. It gives an idea to the business holder about the company’s plans and how they will locate the funds to achieve their goals by examining the previous year cash flow statements. So they have some retained earnings as a back up in case an emergency happens in the future.
A proper cash flow projection helps the business in four different ways:
- Maintaining the stock level:
The projections of cash flows protect the business from wasting the money on retaining the high level of inventory. It gives adequate figures from the previous years, so by analyzing those figures, the company can decide how much money they need to put on the inventory in the coming financial year. The good cash flow projection gives the estimates to the organization on a quarterly, monthly and yearly basis and how much they will sell per quarter or year.
- Budget for long term investments
An organization needs to have a good budget for the expansion of plant and purchasing the equipment and machinery. The development of plant and machinery is one of the major factors of the business growth. Presently, come companies have small retained earnings and small shareholders and owners’ equity but they put very large investment on their Plant, Property, Equipment (PPE) and they considered as the big companies but they don’t have the adequate cash to run their daily operations. We can resolve this by doing proper cash flow projections. And in our financial year budget, we can diversify the funds based on each sector.
- Helps in maintain lower labour turnover
The labour turnover rate is the percentage of people leaving the organization for any reason. So maintaining labour turnover in the organization is another important element for healthy surviving business in the market. The proper cash flow projections help the organizations to give the monetary benefits to the employees which help them to stay long in the organizations and works with their full dedication.
- Make financial projections and emergency plans
The financial projections is another important element of the business. Companies have to do the financial projections before they move to establish their goals. The cash flow projections helps the companies to do the financial projections in a very proficient manner. ir provides the real figures about the previous year’s profit and loss, so on behalf of the companies can make their future financial projections. The cash flow projections also helps the companies to keep some cash from the profit for the future mishappening because market predictions are uncertain
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