ABSTRACT
Good results are not achieved by chance or coincidence-successful businesses budget by compiling projections so that performance can be evaluated against expectations and policy decided in the light of performance. Two of the most important projections a business can use are the cash flow budget and the profit projection. The cash flow budget is crucial to any business since it identifies its financing needs and thus assists the manager in deciding when to seek additional capital and when the need for short term borrowing will arise. It identifies the impact of all cash transactions on the business and shows, on a periodic basis, when the business accumulates and reduces cash reserves. Its importance lies in the fact that a business without cash cannot survive very long since it will not be able to pay its debts as they fall due. The ability to foresee a cash squeeze greatly enhances the ability of the business to manage that crisis. The profit projection is closely linked to the cash flow budget; positive cash flow, that is, the steady accumulation of cash reserves, is a direct consequence of consistently generating profits and careful management of trade debtors. A business with good cash reserves can survive a period without making profits but a profitable business with bad cash flow will not survive any substantial period.
