Chapter 4 : So how do you create a cash flow plan?
Every one of us knows cash flow planning from our private lives. But how do you create one? On the basic approach to cash flow planning and on the approach taken by COMMITLY.
A cash flow plan sounds complicated, but at heart we all know one – whether from the household budget or from keeping an eye on our own account balance. But how do we transfer that principle to a business setting? This chapter shows you step by step how to create a well-founded cash flow plan.
The basic formula: simple, but effective
Account balance today + planned income and expenditure = account balance tomorrow
This approach is the basis of every cash flow plan. On the strength of this formula, companies can take decisions such as:
- Should a larger purchase be postponed?
- Is a transfer from the reserve account necessary?
- Should a salary negotiation be started?
In a business setting the process is similar, though more extensive and more structured. A distinction is made between two kinds of planning:
- Short-term cash flow planning – focused on the coming days and weeks.
- Long-term cash flow planning – focused on months and years.
Characteristics of short-term cash flow planning
The two approaches to planning also have something to do with the character of the people involved. Let us take a closer look at the “operational planner” first:
The operational planner is often also responsible for accounting. In that respect the approach is entirely understandable. The most important rule in accounting is, after all, that no entry may be posted without a document AND that every single cent counts.
But how are you supposed to plan the future on those terms? The only way out of this situation is to hold on to the open items. They show the future inflows and outflows on the bank account, as far as they are known.
Characteristics of long-term planning
It is hardly surprising that the long-term planner takes a different approach. Most probably driven by her own objectives, such as sales targets, the focus here is on annual or quarterly goals.
That is also easy to do, because here things are not calculated to the exact euro but are usually rounded to the nearest thousand euros. That makes the approach far simpler to think through.
The dream team of planning
Not surprisingly, the best planning combines the strengths of both people:
