5 Do’s And Don’ts Of Cash-Flow Projections

Whether it’s a clothing boutique in the Valley, a WeHo third wave coffee shop or a fast-casual restaurant in Downtown, there are few things as crucial to the success of a Los Angeles-based small business as cash flow. A regular cash flow is essential to a burgeoning enterprise’s stability and growth, and failing to adequately address potential choke points can be devastating. To avoid crashing into the rocks, it’s mission critical for founders to perform weekly financial forecasts. Here are a few cash flow projection do’s and don’ts.

 

Do Differentiate Cash And Invoices

To create accurate cash flow projections, it’s important to differentiate cash and invoices. Forecasting a monthly budget that’s based on invoices that may or may not be paid on a specific date can leave you open to experiencing a debilitating shortfall. Even a brief period of not having enough funds to cover payroll, rent or operational expenses can cause an otherwise healthy business to collapse with alarming speed.

 

Don’t Overcomplicate Things

As technology pervades modern life, you may be tempted to invest in a high-powered and expensive app to create your company’s cash flow projections. This would be a mistake. Since a proper forecast should only include income and expenditure data, multifaceted accounting software would only serve to overcomplicate things. Instead, do as the US Small Business Administration recommends and use a basic spreadsheet program to make your projections.

 

Do Keep An Eye On Your Profit Margins

Although it isn’t their purpose, a cash flow projection can be an excellent profit margin analysis tool. If your weekly, monthly and quarterly forecasts are telling you that you’re not making a profit despite doing strong business, you may need to raise prices and/or slash your operational expenses to ensure your company’s long-term viability.

 

Don’t Forget To Reevaluate Your Fixed Costs

In general, a small business’s greatest expenses will be fixed costs like employee compensation, insurance, utilities and rent. Because of the essential nature of these costs, a founder might not think of reducing overhead when looking for ways to improve profitability. However, changing employee health plans, negotiating down rental prices or moving to a more affordable location can greatly improve your cash flow.

 

Do Wait To Take Action

If your cash flow projections show that your company is approaching choke point, you need to take action immediately. Look into securing a bank loan or line of a credit well before a projected shortfall will occur as those options will become less accessible if your company develops a history of making late payments.

 

The foregoing information is provided by City National Bank (CNB). Unless otherwise stated, opinions expressed are those of the respective authors and not necessarily those of CNB. The information is provided without warranty and no recommendation or endorsement by CNB is intended or should be inferred unless specifically stated.

Visit City National Bank’s News & Insights for small business tips, trends and updates.

cnb logo 5 Do’s And Don’ts Of Cash Flow Projections

 

For more tips and inspiration for small business owners,
visit CBS Small Business Pulse Los Angeles.

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