What exactly does the pro-forma cash flow statement do?
A pro-forma cash flow statement compares projected income and expenses with
actual income and expenses on a monthly basis throughout the fiscal year.
It is one of the most effective tools that an owner or manager has to control their
business. When asked how they manage their cash flow, many small business
people will admit that they really don't have a formalized plan.
They will often say that they 'sort of know' or 'they have a feel' for the seasonal
changes in their business and cut back or make adjustments accordingly.Comparing the actual cash flow of the business to a 12-month cash flow projection
can reveal any sudden changes that have occurred in your expenses and the effect
that may have on your current and future cash position.
Good cash flow management can take a lot of pressure off the business. The
cash flow projection is simply a budgeting tool that, if used properly, can
smooth out the highs and lows in your business because of cyclical or seasonal
changes.
It is not a cure-all, but it does help to give a sense of direction and, along with a
written business plan, clears the mind for more productive and creative
thinking.