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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

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

The Cash-to-Cash Cycle Shortages

  • 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 Shortages

  • 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 Shortages

  • 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 Shortagescashflow forecast/Projection

Project cash flows

Project Cash Flows Shortages

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

What is cashflow
What is ‘ Shortagescashflow’?

  • 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 Shortages

  • 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 “ Shortagescashflow”

  • 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 Shortagescashflow





Inflows Shortages

Inflows = money received from

  • Customers (NA)

  • Local and national government

  • Sale of property or equipment (NA)

  • Loans/Grants

Outflows Shortages

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 Shortages:

    • 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

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: 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 outflows:

  • 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! outflows:Q&A

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