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YashTop Contributor
Content Writer
Asked a question 4 years ago

Why is it important to do a monthly cash flow analysis?

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Garima GoelTop Contributor
Content writer and social intern at startupTalky

Cash flow is how much cash is coming into your business and how much is going outside of your business. Doing a cash flow is to Know about your business is going into profit or loss and if going into Loss then on what parameters it is lacking . If going toward growth then what a organization can do to make it as a stable  position. Cash flow is basically to know about the resources where you spend and you are getting proper output or not.

Cash flow may be use for operational study but it is very important from a business perspective  

Your businesses  cash flow cycle may differ substantially from the income statement projections. Even if the projected income statement shows a profit, it is possible that the cash flow for the same period is actually negative.The analysis of monthly cash flow can indicate whether your business will collect sufficient cash to pay operating expenses. It will point out specific months during the year when the business may experience operating cash shortfalls and , therefore  either require additional capital or excess cash reserves for payment of expenses. It will also show when you may be able to make debt reductions and when there is excess cash to make major purchases or expand operations. By developing a monthly cash flow projection, you can time cash needs and quantify the amount needed. The cash flow projection is an important management tool and must be developed with very realistic expectations. Sufficient cash is critical for a business to pay its expenses and to enable it to expand. If your monthly cash flow projections indicate frequent cash shortfalls.You246 should review the type of products and services that you offer, the mix of sales, the pricing and terms of the sale, and your short-term borrowing needs.