Key steps to planning your cash flow for next year

Dec 4, 2019
Key steps to planning your cash flow for next year

You’ve got big plans for your company next year—an expansion or a major equipment purchase. How will your plans affect your cash flow? Will you need financing, and if so, how much? These are typical questions you should ask as part of your company’s annual financial planning.

Many business owners neglect financial projections

A surprising number of business owners fail to make financial projections for their company. And the result can be serious, unexpected trouble.

Making cash flow and other financial projections each year is a vital tool for keeping your business healthy and on a sustainable growth path. They provide a reference you can review throughout the year, so you can make adjustments as needed. Without financial projections, you’re leaving everything up to chance.

How to make financial projections

Here are the basic steps to creating and using financial projections to guide your business.

1. Plan your year

First, think about what you want to accomplish over the next 12 months. This should be based on your strategic plan for your business.

2. Make projections

Based on your past experience and your plans for the coming year, prepare the following:

  • A projected income (profit-loss) statement—Projected revenues, costs, expenses, taxes, etc.
  • A projected balance sheet—Assets, liabilities, and equity.
  • Monthly cash-flow projections—Accounts receivable, accounts payable, investments, financing, etc.

It’s helpful to have different projected scenarios (optimistic, most likely and pessimistic) so that you can anticipate better the impact of each one.

3. Determine your financing needs

Using your projections, determine your financing needs for next year and discuss them with your bankers and other financial partners.

The start of the year is a good time to arrange any needed credit lines or business loans. Working out your financing ahead of time improves your odds of getting approval and helps ensure the best terms.

Also, don’t make the common mistake of dipping into your working capital for long-term capital investments because you may end up facing a cash crunch. It’s better to use long-term financing for such projects.

4. Monitor and adjust

Finally, review your projections each month against your actual results to see if you’re on track. Variances can flag trouble spots in your business. Take an even closer look each quarter. Make any needed adjustments to your operations or changes in your planning.

5. Get help

Depending on your ability, consider seeking outside help in creating your financial projections and monitoring your progress through the year. If you’d like help creating your comprehensive financial plan and understanding the related financial statements … we can help. We specialize in helping businesses create comprehensive financial plans, monitor their financial activity and understand their financial statements. So, if you don’t have the expertise or resources, click here to contact us!


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