Before starting, every new business should prepare a cash flow projection.

What is a cash flow projection (CFP)?

An estimate of your income and expenditure over a 12-month period – set out in such a way that you can calculate your projected bank balance at the end of each month.

What are the advantages of having a CFP?

• It can tell you what your breakeven point is likely to be – for example how much money you need to cover the overheads.
• These projections can enable you to compare actual monthly income and expenditure.
• Comparison of actual and projected income is an important aspect of a CFP which needs to be done on a monthly basis.
• It can let you see when in the future you will need a bank overdraft.  Should it be the case, you must speak to your bank manager and arrange an overdraft facility beforehand.
• The CFP is a vital part of any business plan because it is an important aspect for any bank, credit union or lending body – they always focus on the CFP.

It can be quite difficult to prepare a cash flow projection and therefore we advise you to seek professional help.

SOURCES :

Cronje & Cronje
Business Partners