What is Cash Flow Planning?
Cash flow planning is not a budget, it is pure discipline.
More than 75% of us experience ‘some stress’ every two weeks and almost half of stressed-out people will cite money / finances as the cause. When you consider the massive negative impact that financial stress can have on our health, relationships, and general enjoyment of life – doesn’t it make sense to learn just a little bit about cashflow planning now, so you can avoid the unnecessary stress that comes from a lack of financial planning? A small amount of effort now will pay big dividends later.
Cash flow planning is the first thing that should be done prior to starting an investment exercise, because only then will you be in a position to know how your finances look like, and what is it that you can invest without causing a strain on yourself. It will also enable you to understand if a particular investment matches with your flow requirement.
So does it involve looking at future cash flows only? Not really. You should always do a cash flow for yourself as on date, and you will realize that you could have a potential savings amount within each month of your working life. This is the amount that you should look at saving for meeting your financial goals. The best way of doing this is to have a personal budget.
Importance of Cash Flow Planning
When planning the short-term or long-term funding requirements of a business, it is more important to forecast the likely cash requirements than to project profitability etc. Whilst profit, the difference between sales and costs within a specified period, is a vital indicator of the performance of a business, the generation of a profit does not necessarily guarantee its development, or even the survival.