Reviewing and projecting cash flow
Looking back over the quarter is helpful in knowing where your money went and seeing trends in your business activities. Just as important is looking ahead to make sure you’ll have the funds on hand to meet upcoming obligations.
What are your upcoming expenses? What do you project your future revenue to be? Again, look ahead for a specific period, such as the next quarter or the next year, and use the information in your books to generate your projections.
You’ll follow a process very similar to the one outlined for cash flow statements, but again, you’ll be using hypothetical data. If your business is more than a year old, you can reference last year’s data for the months that correspond with your projection period. This can give you a more accurate cash flow forecast that’s grounded in data, even if it is slightly dated.
If your business is brand new, projecting cash flow can be difficult. Ideally you need to have at least a few months of data, as this will allow you to make rough projections. A month or two of data won’t allow you to account for seasonal factors, but it can at least give you enough to work with. If your business is new and has absolutely no sales data, you’ll be left with speculations. If there’s data available for similar companies in your industry, you can use it to make an educated guess.
Do your best to make accurate projections, as these will help you decide what actions to take. You might decide to cut expenses if too much money is going out compared to revenue coming in, or you might seek a short-term loan if cash on hand isn’t enough to pay your upcoming bills. Once again, it’s up to you to monitor your projections and review your business activities so you can make adjustments accordingly.