Importance of Financial Projections

t is important to prepare regular financial projections and cash flow forecasts as these provide useful information as to the expected financial position of your business. In most cases, banks and funding bodies will request financial projections when businesses are applying for finance.

A cash flow projection shows how cash is expected to flow in and out of the business and how much capital investment your business requires.  Cash flow projections can also assist in the running of your business as cash flow management is a critical tool. For any business, cash is ALWAYS the most important factor. For a lot of businesses that have failed, they didn’t fail because they were not profitable, but because they couldn’t manage their cash flow.

Many profitable businesses have ended in insolvency. Profits do not equal cash and projections are an essential management tool in making investment decisions. If external funding is to be raised it is increasingly common for financial projections to be presented. This is why it is critical to work with a Melbourne Accountant.

Where a high level of debt is being serviced it is sensible to look to the future and consider if the projected profits will generate enough cash to meet the debt repayments.

Managers and owners often look for a goal and financial projections for some are a part of the formula required to work towards the required profitability.

Our approach to compiling financial forecasts is to learn about your business to understand what drives the income and costs and the interaction of these. Contact us for more help.

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