Adapted from content excerpted from the American Express® OPEN Small Business Network
A cash flow statement shows readers of your business plan how
much money you will need, when you will need it, and where the
money will come from. In general terms, the cash flow statement
looks at cash and sources of revenue minus expenses and capital
requirements to derive a net cash flow figure. A cash flow
statement provides a glimpse of how much money a business has at
any given time and when it is likely to need more cash. Analyze the
results of the cash flow statement briefly and include this
analysis in your business plan. See the glossary of terms in the
toolbox.
Tips
- As with all financial documents, have your cash flow
statement prepared or at least reviewed by a reputable
accountant.
- Avoid an unrealistically quick ramp-up of sales. Most
companies experience a gradual increase in sales, even on
a monthly basis. A sudden unexplained spike will
stand-out and not look like an honest appraisal of your
business.
- Include effects of seasonality and business cycles in
all projections. For example, if you are in the gift
business, you would need to show the Christmas buying
season or the Wedding season. If you're a consultant,
you might experience higher sales late in the year when
companies are trying to use up their annual funds, or at
the beginning of the year after budgets are
approved.
- Do not fall in to the common trap of underestimating
cash flow needs. This can lead to undercapitalization,
which means your funds will prove inadequate for meeting
your obligations.
- Do not include "projections" that
include dates and events already in the past. Old
projections are more tolerable if your projections were
right than wrong.
- Avoid large income or expense categories that are
lumped together without backup information about the
components.
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