Building a business plan is a critical factor that will greatly help with managing a business. Without a business plan prepared, running a business will be much more difficult and also riskier since you will have to deal with many circumstances that needs preparation and at the same time, realize the areas for improvement or ones that needs to be controlled and managed properly. There are several components in a business plan and one of it is a cash flow projection.
A cash flow projection or also known as a cash flow forecast is a set of financial reports that project the cash flow in and out of a business, company, or an entity, over a period of time. To create a good cash flow projection is very important in cases such as business planning, budgeting, economic decision-making, etc. As an example, you can either prepare a 12 month cash flow for budgeting or a 3 year cash flow projection for a longer period of financial plan.
Basically, a 12 month cash flow projection is created to help the user to better understand the cash position of the business during the year and as preparation for sufficient liquidity for the business in the upcoming future.The same applies for a 3 year financial projection, except, it is more ideal for long term financial planning. The report will require more details and a lot of complex computations that one needs to go through to come up with the projections, after all, 3 years is a very long time. Many different circumstances might or might not happen within those 3 years, thus, you will have to apply different assumptions which will help you determine the resulting projections after going through numerical simulations.
Creating a 3 year financial projection is much more complex, thus, it is recommended to ask for help either from hiring experts or simply downloading a 3 year financial projection template which you can use to start with as you build a model on your own. It may take time to learn the ins and outs of a 3 year financial projection template, but learning something new isn’t a bad thing, especially when it’s something that is beneficial for you and your business.
To know more details about using a 3 year financial projection template, you can check out the more detailed article: Using a Cash Flow Projection Template for your Budget or Business Plan to help you better understand how to build a cash flow projection for 3 years. There are also several financial templates which you can choose from according to your preference or use case. Just by simply downloading it at eFinancialModels, a platform that offers a wide variety of industry-specific financial model templates, you will have the opportunity to learn and practice how to create a financial model on your own for personal or business purposes.