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WHY SHOULD YOU HAVE CASH FLOW PROJECTIONS? The importance of a cash flow projection Several studies conducted over the last few years have listed a company running out of cash as one of the reasons for failure. This is because some entrepreneurs – especially first-time entrepreneurs – do not adequately grasp the difference between profit and cash flow. Businesses can be tremendously profitable, showing exceptional net profits and margins, and still run out of money. This is because the components of cash flow and net profitability are different. Sales and profits are recorded when the transfer of product ownership occurs or when the service is provided to the customer. Cash is only generated when the deal is converted into physical cash received by the customer. If there is a big-time difference between when you pay your suppliers and when you receive the money from your customers, you could be showing an adequate net profit but inadequate cash balances.