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Understanding Cash Flow Projections. Mona El- Chami , Senior Financial Management Specialist World Bank November 2013 Tripoli, Libya. Importance of Money. Why Money is so important? Almost 2/3 of all small businesses experience money problems

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Understanding Cash Flow Projections

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Understanding cash flow projections

Understanding Cash Flow Projections

Mona El-Chami,

Senior Financial Management Specialist

World Bank

November 2013

Tripoli, Libya

Understanding cash flow projections

Importance of Money

  • Why Money is so important?

  • Almost 2/3 of all small businesses experience money problems

    • 1/5 of small business managers reported that cash flow is a continuing problem

  • Differences are important

    • Represents the lifeblood of the business, and knowing how to use it can make the difference between boom and bankruptcy

Understanding cash flow projections

Percentage of Small Businesses that Experience Cash Shortages


Understanding cash flow projections

The Cash-to-Cash Cycle

Understanding cash flow projections

The Cash-to-Cash Cycle

  • The cash-to-cash cycle of a pushcart vendor is only a few hours; construction projects may take years to complete

  • Many small businesses experience difficulty because:

    • The mismatch in time between receiving and spending cash

    • Mismatch in time between size of payments received and size of payments to be made

Understanding cash flow projections

Managing Cash Flow

  • Cash can come from only three sources:

    • Cash can be obtained by selling products and services

    • Cash can be obtained from investments the business has made

    • Cash through financing (Grants and Loans)

Understanding cash flow projections

How to Better Manage Your Cash Flow

  • Measuring cash flow

    • Prepare cash flow projections for next year, next quarter and, if you're on shaky ground, next week

    • accurate cash flow projection can alert you to trouble well before it strikes

  • Managing Payables

  • Surviving shortfalls

Using a cashflow forecast projection

Using a cashflow forecast/Projection

Project cash flows

Project Cash Flows

The definition, identification, and measurement of cash flows relevant to project evaluation.

What is cashflow

What is ‘cashflow’?

  • The flows of money into and out of the business

  • Money flows inthrough revenue sales of service or product (in our case, cash received from the WB)

  • Money flows out when wages and expenses are paid or assets are purchased.

Understanding cash flow projections

Managing Your Cash Flow

  • Cash-flow forecast will help you predict the amount of money that will be coming into and flowing out of your business

  • Take these steps to ensure your business will maintain its positive cash flow

    • Know what to expect

    • Predict and plan for the slow times

    • Make projections for the future

The principle of cashflow

The principle of “cashflow”

  • More money IN than OUT = cash flow positive. BUT high surplus of cash should be avoided in non-interest bearing account)

  • More money OUT than IN = cash flow negative. Can mean shortage of cash to pay invoices

The aim is to have a positive cash flow or at least a balance.

The principle of cashflow1

The principle of cashflow







Inflows = money received from

  • Customers (NA)

  • Local and national government

  • Sale of property or equipment (NA)

  • Loans/Grants



Outflows= money spent by the business on

  • Wages and salaries for staff

  • Contracts (Construction & Consultants)

  • Gas, electricity, water and telephone

  • Rent and business rates

  • Interest on loans

  • Equipment purchases

Understanding cash flow projections

  • Forecasting cash disbursements:

    • Estimates of expenses

    • Knowledge of your business’s payment patterns

    • Predict how much and when cash should be paid out

    • Need to know how much money we will have on the first day of the year to put together a cash budget for the first quarter

A basic cash flow diagram

A basic cash flow diagram

Understanding cash flow projections

Several strategies that will provide savings in cash outflows:

  • Control of the timing of paying out cash

  • Timing of purchases

  • Negotiation of terms with suppliers

  • Use of temporary agencies

  • Non-cash employee incentives

Understanding cash flow projections

Techniques to decrease cash outflows:

  • Two factors of cash outflows that must be controlled:

    • The amount of cash being paid out

    • The timing of cash being paid out

  • Waste also affects cash outflow

Understanding cash flow projections

In Review

  • Managing cash flows is the most important and most difficult task faced by managers

  • Revenue (cash to be received) and expenses are used to predict the amounts and timings of cash outflows primarily through the budgeting process

Thank you q a

Thank You!Q&A

For any further question or follow up, you can contact me at melchami@worldbank.org

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