BDC Perspective – Planning your cash flow

THUNDER BAY – Money – It’s the start of a new year, and you’ve got big plans for your company—an expansion or a major equipment purchase. How will your plans affect your cash flow? Will you need financing, and if so how much? These are typical questions to ask as part of your company’s annual financial planning.

Erin Laine, account manager at the Business Development Bank of Canada (BDC) says, “The idea is to have a reference you can review through the year, so you can make adjustments as needed. Without this, you’re basically leaving everything up to chance.”

Here are 3 steps to creating and using financial projections to guide your business.

1. Plan your year

First, think about what you want to accomplish over the next 12 months. This should be based on your strategic plan for your business.

2. Make projections

Based on past experience and your plans for the coming year, prepare these three documents:

• A projected income (profit-loss) statement which details your projected revenues, costs, expenses, and taxes.
• A projected balance sheet that takes into account assets, liabilities, and equity.
• Monthly cash-flow projections that include all accounts receivable, accounts payable, investments, and financing.

3. Arrange financing

With your projections in hand, determine financing needs for the coming year and discuss them with your bankers and other financial partners.

The start of the year is a good time to arrange any needed credit lines or commercial loans. Working out your financing ahead of time improves your odds of getting approval and helps ensure the best terms.

“If you come to your banker and tell them you need a $2 million loan next week, most probably he or  she won’t be able to help you,” Laine says. “Bankers don’t like surprises. They lend you money when you can show you understand what you’re doing.”

Also, don’t make the common mistake of dipping into your working capital for long-term capital investments because you may end up facing a cash crunch. It’s better to use long-term financing for such projects.

BDC Perspective

The Business Development Bank of Canada is passionate about one thing: entrepreneurs. Helping them is our raison d’être. BDC listens and knows how to meet their needs. We have business relationships with 29,000 entrepreneurs across Canada. We understand the challenges they face every day, and we use our human and financial capital to provide the means to reach their aspirations. At BDC, we do everything to help entrepreneurs grow their business. BDC offers financing, venture capital and consulting services. BDC focuses on small and medium-sized enterprises (SMEs).

BDC services are available across Canada in both official languages through a network of more than 100 business centres. Its head office is in Montreal. Learn more about the advantages BDC offers.

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