Having a well-defined business plan, and a set of financial statements that details your cash flow is important for your company. While a business plan lays down your objectives, the cash flow projection reveals the amount of money you require to run your daily operation. Both are imperative to your business.
Let’s find how.
What is a business plan?
A business plan is a document used to plan out the specific details of your business. It can be a small description or can be over 200 pages with formal sections. A comprehensive business plan usually has three parts: business concepts, marketplace, and financial, and are further broken down into components that include a summary of the business plan, market strategies, peer analysis, management and operations, and financial information. They serve the following two primary purposes.
This is the main aim of a business plan; to define the business itself and what it intends to achieve over time. It helps in understanding the essentials for forward movement. The clarification part could be a simple description of the business and your products and services. It may specify your exact product line, as well as the customer group that you want to target.
What about cash flow projections?
A good cash flow projection system is necessary to run a business successfully. You should have money to pay off your bills while waiting for customer payments. There’s likely to be a time lag between selling your products and services, and pocketing the revenues. You must have cash to pay your suppliers and debtors, not to mention regular expenses like salaries, rents, taxes, electricity bills and so on. There have been several cases where businesses failed because they had no proper cash flow projection system in place.
Every business is created to generate profits. It’s that simple. You may occasionally lose yourself in dreams of building a multinational empire worth millions. You can’t stay in business unless you have enough cash. Hence the adage, “Cash is king.”
The general principle behind cash flow projection is to identify areas where you can expedite inflow and slow down the outflow of information as much as possible. It’s often difficult to restrict out-flows other than by extending credit terms to suppliers. At the same time, you can’t delay salaries and wages. The key is to realize revenues in the quickest possible way.
Also, it’s natural for a business to pass through lean phases. It’s important that you side enough money during peak periods, which can help in meeting the regular expenses at times when revenue slows down. A good cash flow projection system should consider all these points before it’s made operational.
Businesses evolve over time. Factoring in future growth is an effective way to plan changes in the market, ride trends, and adapt to new directions and innovations. While the clarification of instructions in a business plan specifies the starting point, future vision fixes the goals to reach.
A concrete business plan and a realistic cash flow system can make or break a company. It is important that you devise them correctly before starting production. That is why we are here!