Question

In projects with significant lease-up risk, practitioners will tend to prepare a monthly cash-flow analysis (and then "roll it up" to an annual analysis) - rather than a yearly analysis. How come they are compelled to do so (for ex. what do they hope the monthly analysis shows)?

 

 

Answer 1

The business analysis is vital regardless of the business stability duration, whether a small or well-established business; all these require critical follow-up to facilitate stability.  Therefore, the business persons with significant lease-up risk may prefer monthly cash-flow analysis to the annual cash flow due to the advantages aligned with it. The cash flow is the money getting in and out of business mostly recorded within a month. The customers' cash is purchasing the commodities or the services and the profits from the transactions (Lu et al. 2016). The amounts received by the customers who purchase on credit result in the accounts receivable.

The records kept monthly by the newly starting businesses, and the well-established are summed up inaccurate annual reports. First, the monthly cash flow clearly shows how the lenders have spent the cash; this appears in tandem with the profits and the loss made as derived from the balance sheet. The transactions monitored keenly help ensure constant cash flow in the business despite the customers buying on credit. The records did monthly help to account for the cash expenses, repay bank loans, purchase new vital assets and pay the taxes.

 The constant flow of cash helps to keep the firm solvent and helps to avoid being declared bankrupt. The losses and the benefits encountered over various periods due to market changes are accounted for in the records. This helps make conclusive annual reports on the business's performance (Cui et al., 2010). The monthly cash flow records provide clear and accurate data relevant to auditing the business transactions in a year. Hence proving the relevance of monthly cash-flow analysis rolled up to annual analysis.