Cash Flow Projections

Definition and Importance:

Cash is critical for the survival of all businesses - but most critically for new businesses.

Cash is required to pay obligations as they fall due; such as wages, stock repurchases (COGS).

Cash always flows into a business (sales, asset sales and new loans / equity) and always flows out of a business (expenses, asset purchases and repayment of loans).

A cash flow projection is critical to ensure that a firm’s liquidity position remains is good shape. 

There may be times of the year when sales are slow, or when sales are very high. 

These seasonal variations will impact the liquidity (ability of the firm to pay obligations as they fall due).

Making projections / estimations / forecasts will allow a business owner to prepare for periods of negative cash flow periods, enabling the business to continue to function without crisis. This is called budgeting.

See Cash Flow Statements for related information.