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Creating Cash Flow Projections
One – Be the best.
The result of a well-developed and executed strategic plan is to develop a competitive advantage. Just what is a competitive advantage? Business lingo aside, it is simply the answer to: What can your
Understanding your competitive advantage is critical. It is the reason you are in business. It is what you do best that draws customers to buy your product/service instead of your competitor’s.
Extremely successfulorganisations deliberately make choices to be unique and different in activities that they are really, really good at and they focus all of their energy in these areas. You may decide to incorporate your competitive advantage into your Mission and/or Vision statements.
Two – State your purpose.
To write aMission Statement, answer the questions: What is your business? What are you trying to accomplish for your customers? What is our yorganisation's reason for existing?
Three – Visualize the future.
Four – Take an inventory.
Assess your strengths and weaknesses by answering these questions: What do you do best? What do you not do best? What are your organisation's resources – assets, intellectual property, and people? What are your organisation's capabilities (functions)?
Assess your opportunities and threats by answering these questions: What is happening externally that will affect your organisation? What are the strengths and weaknesses of each competitor? What are the driving forces behind sales trends? What are important and potentially important markets? What is happening in the world that might affect your company?
Five – Profile your customers.
Six – Write your goals and objectives.
Goals and objectives are like stair steps to your mission and vision. Realistic goals and objectives are developed from the SWOT analysis and customer profile. Objectives set the agenda, are broad, and global in nature. Write two to five objectives that give action to your mission/vision and will take a few years to achieve. Then, develop goals to achieve each objective. Goals should be measurable, quantifiable, and support your objectives. Think about achieving them in a one-year timeframe. Effective goals must state how much of what kind of performance by when is to be accomplished and by whom. Make sure both your goals and objectives build on your strengths; shore up your weaknesses; capitalize on your opportunities; and recognize your threats.
Seven – Assess your resources.
Now that you have completed your goals and objectives, it is time to do a resource assessment. One of the biggest stumbling blocks to all well laid strategic plans is time and money. As with every business, budgets are never big enough to do everything you want to do. Prioritize key goals by asking: Do implementing the goals make financial sense?
Eight – Take action.
Nine – Keep score.
In step six, you wrote goals that were measurable. Put these measurements and targets on a scorecard which acts as an instrument panel guiding your
Ten – Make strategy a habit.
Make the plan a living document.
CREATING CASH FLOW PROJECTIONS
A Cash Flow Projection provides you the visibility you need to avoid problems and create the financial success.
Cash Flow Projections Made Easy
Creating cash flow projections does not have to be a difficult process. It is really a matter of using a few basic principles together with your intuition and knowledge about your business.
Here is a 5-step process you can use to create cash flow projections you can trust.
1. The Near Future Almost Always Looks a Lot Like the Recent Past.
The starting point for creating accurate cash flow projections is to have the last six months of actual results in front of you. You have a perfect view into what the cash flow is likely to be because you have the last six months of actual cash flow results there to look at.
You will be amazed at how this principle will help you create accurate projections. It also helps make the process so much easier and faster for you.
2. Consider What is Changing.
Is anything in the business changing right now in a significant way?
If you just negotiated a 10% discount in the cost of a product you re-sell to your customers, then you should consider whether it should be reflected in the month you will experience the reduced cost.
The key here is to make sure it is significant enough that you are certain of its impact. Otherwise, it would be better to see the impact in your actual results before including it in your projections.
3. Be Conservative.
One thing about a projection you can be certain of: it will not be perfectly accurate. You can be 100% certain that the actual results will vary somewhat from what you project.
The trick is to get close.
4. The 90% Test.
Here is a simple test that will work wonders for you.
Are you 90% sure the cash balances will come in at or better than you projected? The key here is the phrase "at or better than you projected". If you can answer yes to this question with confidence, then your projections are sufficiently conservative.
5. Use the "Smell Test".
Take a look at the projections again. Look closely at the resulting cash balances. Are they in line with your general expectations? Are they in line with the actual cash balances over the last six months?
Give the projected cash balances the "smell test". The smell test is a quick way to make sure everything smells right. It's a way to make sure nothing unusual or unexpected has made its way into your numbers.
Taking Control of Your Cash Flow
Your cash flow projections provide you the visibility you need to make more profitable business decisions.
you Cash Flow Projections prove to be inaccurate in the future, investigate
the reasons for the differences. This analysis on your part will
reveal if you should make changes to business operation actions and
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