Cash Flow Plans

Fiscal responsibility: It’s what separates you from Johnny Depp.

If your family is on a budget, it’s important to know where money is coming in…and where money is going out. You and your spouse might put on an Excel sheet how much in income you expect each month on one side. On the other side, you’ll write down expenses that are fixed, like your mortgage and electric bills, and variable ones, like vacations and the scotch that you categorize under “miscellaneous expense” and hide in the walls.

Now, if you’re really ready to graduate, you don’t just do it the month you’re living in now. You do it for the next three months, so you can plan for any scenario...especially for an emergency, like if you suddenly find out that Justin Timberlake is coming to town in five days.

Well, companies do this sort of planning on more than a monthly basis. And instead of Excel files, they have strategic financial documents that project cash flow (money in, money out) over the next few quarters. This helps a firm make strategic decisions, ranging from hiring to when they might want to purchase new capital equipment. It’s all about staying liquid and paying your bills on time.