All of the above examples, taken into account in the financial model, cause a fairly significant discrepancy between cash flow indicators and accruals. This is especially true for a business that is growing rapidly and selling SaaS on an annual subscription model. P&L allows you to determine how efficiently the company operates, and not just generate cash.
The point is that a company can receive a lot of advances, promise a bonus to sales specialists at the end of the year, and only have to pay taxes next year. It may seem that there is a good cash flow, although the enterprise is unprofitable. Another task of P&L is to plan for income tax.
The difference between the exploring amazon: the essentials first two types of budget, as well as their final lines, i.e. the cash balance and profit/loss, are transferred to the balance sheet. They affect accounts receivable and accounts payable, the amount of loans that the business takes to cover cash gaps. The balance in the financial model allows you to determine the sustainability of the enterprise in the short and long term, as well as the period of time needed to repay the obligations, and the amount that shareholders will ultimately receive.
A cash flow budget is sufficient for a new firm, provided that its financial model does not have significant deviations between payment terms and product sales, as in the subscription example. Also, there should be no provision for deferring large bonuses to employees.
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Alexander Kuleshov
Alexander Kuleshov
General Director of Sales Generator LLC
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