what is cash flow projection and when to use in an entity
Cash flow projection is a forecast of the future cash inflows and outflows of a business over a certain period of time, usually on a monthly basis. It helps businesses plan ahead and predict their liquidity needs, allowing them to make informed decisions regarding investments, financing, and operating expenses.
Cash flow projections are typically used by businesses when:
1. Planning for growth: When a business is considering expanding or investing in new projects, a cash flow projection can help determine if there will be enough cash available to fund these activities.
2. Budgeting: Cash flow projections are an essential tool for creating a budget and setting financial goals for the business.
3. Managing cash flow: By analyzing cash flow projections, businesses can identify potential cash shortages and surpluses, allowing them to make adjustments to manage their cash flow effectively.
4. Securing financing: Lenders and investors often require businesses to provide cash flow projections when applying for loans or seeking investment, as it demonstrates the business's ability to meet its financial obligations.
Overall, cash flow projections are a vital tool for businesses to monitor their financial health, plan for the future, and make strategic decisions to ensure long-term success.