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7 Reasons Why you should Prepare a Cash Flow Projection


Managing your Cash Flow

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Unit Summary

7 Reasons why you should prepare a Cash Flow Projection:
  1. Helpful in Planning
  2. Forecasting the Future needs
  3. Maintenance of sufficient cash Balance
  4. Controlling Cash Expenditure
  5. Evaluation of Performance
  6. Testing the Influence of proposed Expansion Programme
  7. Basis of finance Co-ordination

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Hi. In this video, we will learn why it is important to have a Cash Budget.
Cash budget is an important tool in the hands of financial management for the planning and control of the working capital to ensure the solvency of the firm, and thus, ensure that you have enough cash on hand. A business should have at least 90 days of cash on hand to ensure they remain healthy financially.
Here are 7 Reasons why you should prepare a Cash Flow Projection:
  1. It is Helpful in Planning. Cash budget helps planning for the most efficient use of cash when there is a oversupply and what to do when it is low
  2. Forecasting the Future needs. Cash budget forecasts the future needs of funds, its time and the amount well in advance.
  3. Maintenance of sufficient cash Balance. Cash is the basis of liquidity of the enterprise and a Cash budget helps in maintaining the liquidity.
  4. Controlling Cash Expenditure. Cash budget acts as a controlling device of various departments expenses
  5. Evaluation of Performance. Cash budget acts as a standard for evaluating the financial performance.
  6. Testing the Influence of proposed Expansion Programme. Cash budget forecasts the inflows from a proposed expansion or investment programme and testify its impact on cash position.
  7. Basis of finance Co-ordination. Cash budget helps in coordinating the various finance functions, such as sales, credit, investment, working capital etc.

Money should not, and must not, change our commitment to solving problems and building this state. Dave Freudenthal