Cash Flow

One of the largest cash outflows that companies forget to project is the tax liability that the company or the owners must pay. It is not uncommon for a business owner of a flow-through entity, i.e. partnership, s-corporation, or sole proprietor, to distribute a significant sum of cash from the business in January to make a sizeable personal purchase only to realize he/she does not have enough cash to pay the IRS in April.

Besides a detailed 3-month cash flow projection, every business should have a month-by-month projection of their cash flow for the next two years and a year-by-year projection for at least the next five years. These projections are part of the overallfinancial model and business plan of the firm, which is further discussed in Access to Financing. The benefit of this model is to allow owners of the business to input the variables surrounding strategic decisions to see the ultimate effect the decisions will have on cash flow.

As the CFO consultant for our clients, we implement short and long-term cash projection systems to help our clients maximize cash flow.