Is your business experiencing financial anxiety? According to a US Bank study, 82 percent of business bankruptcies are due to poor cash management. In today’s economic environment, cash management has become even more critical to small business life. According to various research organizations, companies that successfully survive have been exercising control over their cash flow and costs.

Financial experts agree that financial projections and cash planning are the most important financial planning tools for a business. That said, cash planning is the least intuitive of the financial management tools, and therefore the most challenging. And yet, no one is more qualified than a business owner to forecast their business cash. The notion that only a financial expert can produce cash flow projections is wrong. Think about it, the typical accountant focuses on the balance sheet and profit and loss statement (historical information) because his primary responsibility to his clients is to produce year-end tax returns. The typical bookkeeper focuses on the basic bookkeeping necessary to keep the accountant happy and the books in order. Of course, there are exceptions to the “typical,” and these individuals are to be applauded.

Correct some common misconceptions about cash and cash flow planning:

“We are profitable.”

Great, but profit is an accounting concept and has no direct relationship to cash flow. The profits are on paper. Cash is what you spend and the payments you have actually received, that is, what you have “in the bank”.

“Our accounts receivable are strong.”

Again great, but accounts receivable does not have a direct relationship to cash flow as it does not have a designated time frame. Accounts receivable (for example, invoices) are not cash. It is the intention of your customers to pay at a future date. Account receivable is not cash until it is in hand.

“We don’t have time to make a plan.”

The busier your business is, the more you need to plan your business. Financial projections don’t have to take hours or days.

“We’re not big enough to need cash flow projections.”

Is not true. In reality, it’s the smaller businesses that don’t have a lot of money that need financial planning the most. These are the businesses most at risk when accounts payable exceed cash on hand, or when long-term acquisition/growth expenses exceed short-term revenue.

“It’s too complex for the average business person to produce.”

Is not true. It’s about making good, realistic estimates about what you’re going to sell and when, how much it’s going to cost and when, and what and when your expenses will be, ie income and when versus withdrawal and when. There are tools to help with this process.

“We do the financial projections in our heads.”

Unless your business has a single customer and only a handful of expense categories and goods costs, it’s unrealistic to believe that a business person can juggle all the variables in their head.

“We do our cash flow projections once a year when we do our budget.”

The thought process behind this statement defies logic. Do you only check your bank account once a year? Ideally, a cash flow projection should be done each time accounts payable are processed (for example, check cutting), or at least once a month.

“We review our income statements and balance sheet every month.”

Neither the income statement nor the balance sheet are sufficient to plan and manage the treasury. These reports are historical, not future-oriented.

“Our books are on an accrual basis, so we don’t need cash flow projections.”

Is not true. Cash-based or accrual-based accounting is about how your business handles sales and expenses, primarily for tax purposes. Your accounting method does not influence cash projections that deal with the future timing of cash in and out for your business.

“We are doing well as we regularly produce a statement of cash flows.”

Is not true. Don’t confuse a statement of cash flows with a cash flow projection. The cash flow statement shows how cash has come in and out of your business in the past. The cash flow projection shows the cash situation for a period of time in the future.

“Our invoices are due upon receipt, so we don’t need financial projections.”

Is not true. Consider growth/acquisitions (eg, extended business hours, new product or service lines, new staff, etc.) or changes in vendor payments (eg, payment schedule acceleration, cost increases, etc.) and expenses (eg, rate increases). , additional services, etc.) could have a dramatic impact on your cash flow.

There are several ways to do a cash flow projection. If you talk to financial experts, each may have their preferred method and terminology. However, you do not have to give in to a financial specialist to make your financial projects quite easy. ezTRUNNION LLC has developed a cash management and cash flow projection tool that is integrated with QuickBooks(R), the most popular accounting package for small businesses. CASH Cop(TM) has enough flexibility built into the tool to allow businesses to create cash flow projections that suit their situation and needs. Because the tool focuses only on cash flow projections and cash management, the price is affordable for small businesses.

There are other products available that also do cash flow projections. Free Excel(R) templates are available from a variety of resources, including SCORE. These templates require the user to manually enter all the information and manually keep them updated. Due to the time required to acquire the necessary information and then enter it, users are often discouraged from producing cash flow projections on a regular basis.

There are also financial planning tools, available for a price, that have a host of reports, charts, and tools built into one application. These types of tools fall into one of two categories: stand-alone or integrated. Standalone financial planning tools still require essential data collection and entry, but these tools are affordable for a small business and produce a variety of reports and charts. These tools vary in their “friendliness” for lay users. Check them out before you buy. Built-in financial planning tools can pull the necessary information from specific accounting systems (very few integrate with QuickBooks), but these tools tend to be more expensive and provide reports, charts, and other financial tools geared toward larger businesses. Make sure you understand the price (for example, monthly service charge or one-time purchase) before you buy.

In short, there is no substitute for cash projections. Any small business can take control of their financial future using this essential financial planning tool. There are a variety of products on the market that will allow a company to create its own financial projections without necessarily hiring a financial specialist. A company only needs to determine its cost constraints (product price) and time requirements (time required to learn and use the product) for a financial projection tool, and then purchase the tool that suits its needs. A commitment to produce and regularly review cash flow projections is essential to the financial success and survival of every business.