CASH FLOW TRUTHS!

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A monthly profit & loss cash flow forecast has many truths – it is a management tool to:

  1. Realistically forecast anticipated revenues and expenses as per the Annual Plan goals and objectives.
  2. Build a Best Case/Worst Case forecast to assist Managers when it is difficult to forecast revenues.
  3. Show monthly revenues and expenses so that Managers can see:

      1. Where more resources may be needed or where fewer resources may be needed based on revenue projections so that resources are utilized more effectively.
      2. Where more marketing and sales activities are needed to build revenues.
      3. Where more operations manpower and scheduling are needed based on increased marketing and sales efforts bringing in more projects (and revenues) than forecasted.
      4. Where more administration and finance/accounting manpower and scheduling are needed based on increased marketing and sales efforts bringing in more projects than forecasted.
      5. Where a line of credit can be used for flat months or unusually low revenue months and when the line of credit can be paid back when revenues increase.
      6. Whether gross profits and net profits are being realized and if this not happening where action can be taken to increase gross profits and net profits.
      7. To quickly spot unusual operating expenses or administrative expenses.
  4. Motivate the Executive Team to ‘maintain growth and profitability.’
  5. Motivate all employees to ‘maintain growth and profitability’.
  6. Show profit sharing based on actual financial results.
  7. Show each Manager in each department, actual revenues and expenses versus forecasted revenues and expenses so that action can be taken to reach the forecasted goals.  Or, in worst case scenarios, where revenue and expense forecasts can be scaled down to reflect difficult market conditions but yet keep the company on course to ‘maintain growth and profitability’.
  8. Show each Manager how to manage his/her department as if each Manager was running their own business where they are accountable for staying on track and achieving yearly revenue and net profit goals.
  9. Evaluate whether the Annual Plan goals are realistic and realizable and whether changes may be needed to the Annual Plan so that it is a more realistic planning tool.