Cash Flow Planning

For both businesses and households, cash flow planning is a vital economic tool that can mean the difference between financial success and financial disaster. Though the concept is not that difficult, the process itself often involves making assumptions that may or may not turn out to be accurate or even realistic. A business owner or corporate management team that pays attention to profits and neglects the important role of forecasting cash flow may find themselves experiencing financial difficulties even though the company is making a sizable profit. This is why it's so important for owners to understand the importance of basing forecasts on reliable assumptions as they go through the process of cash flow planning for the business. Similarly, though on a much different scale, household finances are affected by cash flow. Proper planning and budgeting can ensure that all bills get paid in a timely manner while also saving for emergencies or other unexpected expenses.

Many people only consider profit when gauging the success of a company. Though the actual formulas can be quite complex, involving armies of accountants and bevies of bookkeepers, the basic idea is that all the business's expenses (outflow) is subtracted from all its income (inflow). The remaining amount is the business's profit (if the amount is more than zero) or loss (if the amount is less than zero). But the reality is that a company could show a very nice profit and still fail because of poor cash flow planning. This happens when income hasn't been received, but expenses still needed to be paid. For example, a shoe manufacturer may have $5,000 in sales this month, but the retailers purchase the products on credit. The $5,000 in sales exceeds the manufacturer's monthly expenses of $1,500 so the profit equals $3,500. But because the retailers haven't paid for their purchases yet, the shoe manufacturer is unable to pay the expenses. This simplified example shows the danger of looking at profit, and ignoring cash flow planning, when evaluating a company's financial stability.

All kinds of accounting software programs exist to meet the needs of various sizes and types of companies. These programs can record, track, and calculate such financial information as total sales, accounts receivables and payables, cash on hand, profits, and net worth. From the data, important financial documents can be prepared such as balance sheets and profit and loss statements. Accounting software programs can also be useful for cash flow planning. Most have features that allow the business owner to see what happens when varying strategies are utilized. For example, how will cash flow be affected if sales increase by ten percent in the next quarter? What happens if a particular loan is refinanced for a longer term, but at a lower interest rate? Or vice versa a shorter term, but higher interest rate? By plugging in alternative economic strategies and assumptions, the business owner can evaluate which ones make the most sense for the company. Some people make the mistake of being too optimistic in their assumptions. Business owners are cautioned to be realistic about any assumptions underlying economic decisions. These should be based on past financial records, market research, and a good understanding of the particular industry's seasonal shifts and trends.

Proper and relevant net cash flow planning forecasts a company's inflow and outflow within a specific time period. These forecasts are commonly prepared for a fiscal year, but on a monthly basis. A month's actual inflow and outflow can be compared to the forecast to update the forecasts for future months and to provide a historic record for the following year. Once again, it is important that those who are preparing the forecasts are realistic about sources of income, delays, and costs. Being overly optimistic can lead to economic difficulties later on. The writer of Proverbs said that: "The thoughts of the diligent tend only to plenteousness; but of every one that is hasty only to want" (Proverbs 21:5). Diligent forecasting based on sound information will go a long way toward keeping a company's cash flow in the black.

Business experts offer many ideas for improving cash flow planning. A knee-jerk reaction may be to increase sales, but this idea might backfire. It won't do the business any good to increase the amount of money that customers owe. In fact, if orders are filled on credit, the company's inventory may be depleted and the money will not be available to restock. However, the business owner can monitor expenses and take advantage of credit opportunities offered by vendors and suppliers. If a vendor allows thirty days to pay for an order, the business owner may choose to take advantage of that offer. Other solutions for improving cash flow are to tighten credit policies, add late fees and penalties if possible, and increase pricing. The sooner a problem is recognized, the sooner it can be analyzed and remedied. The right financial documents, based on relevant assumptions and information, will bring the problem to light.

Households can also utilize cash flow planning to ensure financial security. When planning a budget, individuals should recognize three types of expenses: fixed, variable, and periodic. Every month, individuals pay certain fixed expenses, such as mortgage, cable, cell phone, perhaps a car payment or two. Variable expenses may include such items as groceries, entertainment, and clothing. Periodic expenses come around every few months or once a year. These include items such as homeowner association fees, club memberships, and automobile registrations. A proper budget includes a way to save for these periodic fees so that the cash is available to pay the expense when it comes due. Households with inflow that exceeds outflow, with reserves for periodic expenses and emergencies, are achieving financial security.

Cash Flow Services

With the help of cash flow services, businesses and consumers alike can quickly attain the needed capital that will keep a home or business afloat. All too often, an organization's funds could be tied up within the business itself, making them unavailable. Turning to a service that can supply funds in a timely way can make a big difference for growing companies. If an individual consumer is a recipient of installment payments on a sold asset, but that individual would like to receive all or part of their funds right away, cash flow services can quickly provide those funds. Often families will use this financing to consolidate debt or to purchase property. New businesses that do not wish to miss a pressing growth opportunity will often call upon these financial providers as well. Whether the need is for new equipment, supplies or property, these providers can offer both the needed funds along with professional counseling. Other features that are frequently offered might include help with collecting on overdue payments from customers and methods for electronic payment and deposit. By servicing such customer needs as annuity payments, royalties, structured settlements, or projected lottery payments; these providers can meet an important need for businesses and individuals.

There are several different types of cash flow services. These service providers could include medical accounts receivable funding, receivable commercial short term bridge financing, business notes, real estate notes, commercial funds for specific uses, or privately held loan portfolios. Commercial short term bridge funding can generally involve financing that is needed for construction purposes or could also be used for foreclosures, or bankruptcies. Meant to only cover short term financial needs, these loans tend to also offer fast closings. Privately held real estate notes can be used to establish a personal line for credit for the borrower. Business notes function in much the same way except that the sale of a company or company assets is involved. Commercial funding for specific purposes such as apartment complexes or health care facilities can also be supplied through cash flow services. In the case of private loans that are not performing up to expectations, these funding providers can supply needed cash on the basis of such loans. Medical professionals who can't afford to wait on insurance company payments can also receive financing on the basis of future incoming payments from patients. Short term bridge loans and commercial real estate notes can provide funds for needed growth or for building.

Selling a note to cash flow services can provide funding for a variety of needs. A note is a legal promise to pay a debt over time. By selling these notes, a client can free up needed cash without going into debt. Whether a seller wishes to use the money to purchase a new home or to expand a business, fund that are made available through the sale of a business loan can make a huge difference. If financing is needed to construct an apartment building or to expand facilities such as nursing homes, or assisted living complexes, these funds can be made available. To get started on such projects, the client will need to provide the lender with a funding request, a list of any special circumstances involving the project, and a cash flow projection for the years ahead. Some of the major benefits of working with providers of cash flow services can include the ability to put available money to work in the way that the client chooses. The Bible talks about the blessings of heeding the Word of God. "Blessed is he that readeth, and they that hear the words of this prophecy, and keep those things which are written therein: for the time is at hand." (Revelation 1:3)

There are also organizations that specialize in offering short term funds for specific business needs. Some cash flow services offer clients funds that can help them meet payroll during times when available money is running low. New companies often need extra help during the start up phase. The availability of unlimited funds can go a long way in getting a new company off the ground. Credit is awarded on the basis of the merits and potential of the applying business. In addition, many providers will also help companies deal with the types of collections issues that can cripple cash flow. When notes are sold to these services, the client will usually receive less than the face value of the note. Having the money in a lump sum is generally seen as an adequate reason for sacrificing some of the note's value. Whatever needs an organization or individual may have, the prospect of attaining funds is an attractive one for companies and consumers alike.

For some business owners, the help of reputable cash flow services can mean the difference between success and failure. Cash can be the lifeblood of any venture. Hiring employees, expanding, purchasing equipment, improving facilities, or even just meeting day to day expenses requires available funds. There are a variety of ways that a company can generate funds including the sales of a manufactured product or a marketable service, selling off assets, various loans, or investments that are made by owners. When the money that is flowing out of a business even temporarily exceeds the money that is coming in, a cash flow problem exists. This problem must be addressed if a business is going to survive. A solid understanding of these issued coupled with the judicious use of these monetary providers can give companies a needed financial edge in today's business world.





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