Cash Flow Forecast

Having a clear view of our finances brings an undeniable sense of calm and relief, as well as a greater ability to make more informed decisions. To this end, at the enterprise level (especially for the self-employed and SMEs), one of the basic elements is a cash flow plan. How can this tool be useful to our company? Find out in this article the essentials about developing a cash plan.

Cash Plan: What is it?

A cash plan is nothing more than a document that reflects the cash inflows (receipts) and outflows (payments) of a certain company or enterprise. The calculation of these cash flow plans can be short, medium or long term. For example, three months, six months or a year. However, the most common and recommended is that of three months, mainly because it offers the most reliable results.

A standard cash plan can be useful for both businesses and individuals who want to better manage their finances. It is based on planned cash inflows and expected expenditures.

What are the elements that make up a cash plan?

In a cash plan, it is necessary to differentiate receipts from payments, and not take into account revenue and expenditure.

Receipts

• Receipts for the provision of services or the sale of products, the dates of receipt of these invoices will depend on the date on which you agreed with the customer.
• Receipts from financial transactions: those related to financial products or positive returns on investment, among others.
• Exceptional receipts: those from, for example, income from borrowing, tax refunds or subsidy receipts.

Payments

• Payments for purchases of goods.
• Current payments, which refer to the expenses of our activity, such as rent, supplies, wages, social security, etc.
• Financial payments, which relate to loan repayments, bank interest, commissions, etc.
• Extraordinary payments: fines, penalties, specific transactions and commissions, among others.

How is the cash plan useful?

The task of the treasurer of a company is to ensure that there is no shortage of cash. To achieve this, adequate planning is required, hence the cash flow plan. This plan anticipates possible payments that must be made, taking into account the due date.

With the cash plan, we know at all times the budget that the company has, in order to be able to cope with unforeseen expenses. On the other hand, if an appropriate cash plan is made, all of these benefits or benefits will be obtained:

• Controlling the liquidity of the company: Approximately know the financial resources available in the coming months to make informed decisions based on the situation.
• Decide on possible investments based on the flexibility of our cash flow.
• Have an idea about payment obligations: will we have the cash to deal with the remaining payments?
• We're getting information about our debt capacity.

Improve business management: The data will show the best months of the year and those that are harder.

In short, a cash plan gives an overall view of the company's accounts, with which it can be decided whether it is necessary to resort to external financing (bank or other loans).