Reason #9 Why You Should Do Business Projections
May 25, 2021 by Roger Scherping
Roger recently appeared on the Small Small Business (SSB) podcast. Learn how SSB helps small businesses here.
Roger discussed 10 reasons why you should do business projections. Here’s reason number nine.
Roger Scherping: OK, number nine on my list is: Project your cash balance. I don’t think there’s a financial metric that’s more important than your cash balance. I think it’s more important than sales or profits. If you don’t have cash, your vendors don’t get paid, or you miss a payroll, and then your business stops. So a projection – a monthly projection – will tell you what your cash balance will be in each of the next 12 months looking forward. You’ll see the lowest it will get, so maybe in six months from now, oh my gosh, look how low it gets in June. Or maybe it goes negative. But now we have six months to plan for that and make changes. Maybe we adjust our spending or we do something different with sales – anything, reduce inventory. But we can see, looking forward to see the impact.
Steve Fredlund: And that’s sort of the old accounting adage, right? Cash is king is sort of one of the main priorities when you learn accounting. And it ties in nicely to when you talked about earlier with growth. Especially if you’re growing, it’s amazing. You know, you can be making a lot of profit, but your cash is dried up. And if you don’t that’s coming, you could really find yourself in a bind.
Roger: That reminds me. One of the funniest stories I ever heard from a client was, he understood there is a difference between profit and cash flow. A lot of people don’t know that. They think it’s the same thing. And this guy told me one day, he said, “There were lots of years where I made a ton of money, but I was broke.”
Roger: So I just love that quote.
Steve: I do, too. And I think that if you’re scratching your head right now listening to this thinking, “What are they talking about?”, you should probably talk to one of us about that. Because there is a big difference, and you could be making some poor decisions for your business.
Roger: That’s right.
Listen to Roger’s previous reasons on our YouTube page.
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