Liquidity management

The cash-flow projection – how your company’s cash position will change over time – will help you anticipate any cash-flow problems. By projecting future changes in your company’s cash position based on incoming cash (i.e., bills paid) and outgoing payments, you can calculate your projected cash position. Don’t underestimate the importance of cash flows: most young companies that go bankrupt can trace their woes to a momentary cash crunch.

Monthly breakdown

To quantify your cash flows, prepare a table in which you record projected cash inflows and outflows over a year, broken down by month. In order to plan incoming cash flows as accurately as possible, take into account the average amount of time it will take your customers to pay. Likewise, for outgoing cash flows, take into account your suppliers’ payment deadlines.

Anticipating needs and opportunities

Based on your cash position, you can think ahead about:

• investment options, based on the recommendations of your financial advisor;
• whether you need to draw on your existing credit limits;
• and whether you will need to negotiate a further credit line in order to avoid an overrun – before it's too late.

Example of a cash-flow projection