Financial / Cashflow Plans

Cash Flow Management Plans focus on the short term impacts of trading activity on the cash position of the company, along with those outflows that service the firm's financing decisions for strategic investments in key assets like building, plant, machinery etc. The financing of these assets require continuous payments of interests and/or capital re-payments.

Growing companies (that may well be profitable and on track to create shareholder wealth), invariably find themselves strapped for cash in the short term, because of the timing effects of these demands. In extreme cases they find themselves giving the market the erroneous impression that they are in financial distress.

Key benefits of providing short term (annual) cash flow forecasts and cash flow management plans are:

• They link the annual budget drivers (Revenues and Costs) with the timing effects of the cash inflows and outflows, and make a projection of the bank balance of the company for the year ahead;

• They link the actual performance of the company each month and 'year to date' with the budget projections of the company and the actual bank balance ,at the end of each month; 

• Linking the annual budget and monthly accounts of actual results to the bank balance, makes the workings of the company visible to all providers of finance (equity shareholders and debt holders). This in turn reduces the risk of the company, reduces the interest/return rates and even permits the company to raise funds more easily

Allan Rodrigues of The Business Farm specialises in creating Financial and Cash Flow management plans for companies in Australia and New Zealand.