A cash flow projection is a financial statement that forecasts a company’s expected cash inflows and outflows over a specific period of time. It is used to plan for and manage the company’s financial resources and to identify potential cash shortages or surpluses. The projection typically covers a period of several months or years, depending on the needs of the company.
Why am I being asked for a Cash Flow Projection?
There are several reasons why a banker may be interested in a cash flow projection. First and foremost, a cash flow projection helps the banker understand the company’s financial position and determine its creditworthiness. This is important because the banker needs to assess the company’s ability to repay any loans or financing it may be seeking. A cash flow projection can provide insight into the company’s current and future financial health and help the banker determine whether it is a good credit risk.
In addition, a cash flow projection can help the banker understand the company’s business model and identify potential risks or opportunities. For example, if the projection shows that the company is reliant on a small number of customers or suppliers, this could be seen as a potential risk to the company’s financial stability. On the other hand, if the projection shows that the company has a diverse customer base and strong relationships with multiple suppliers, this could be seen as a positive indicator of the company’s financial stability.
A cash flow projection can also be useful for identifying potential financing needs and opportunities. For example, if the projection shows that the company will need additional financing in the near future, the banker can work with the company to determine the best financing options. Similarly, if the projection shows that the company will have a surplus of cash in the near future, the banker can help the company identify investment opportunities or suggest strategies for managing the excess cash.
Overall, a cash flow projection is an important tool for managing and planning a company’s financial resources. It provides insight into the company’s current and future financial position and helps the banker understand the company’s creditworthiness and identify potential risks and opportunities.
