The cashflow forecast

Cashflow refers to the money which flows into and out of a business over a period of time, usually one year. A cashflow forecast should be constructed for the first year of trading (some lenders ask to see forecasts for the first three years. A cashflow forecast gives the estimated sum of cash inflows into a business, minus the sum of cash outflows. Inflows of cash can arise from cash sales, debtors paying cash, interest received, and sales of any assets. Cash outflows may be caused by cash purchases of stock, purchases of materials or of assets, or by settling debts owed to creditors. The cashflow forecast shows the net effect of cash inflows and outflows each month, and the impact of these on the firm’s bank balance.

The advantage of cashflow forecasting is that it allows the business to spot in advance any shortfalls in cash during particular months, and to take appropriate action. If a deficit is anticipated, the firm can attempt either to reduce cash outflows in advance, or to raise cash inflows. Failing this, it can attempt to arrange an overdraft to cover the deficit. The cashflow forecast also allows the firm to identify where cash surpluses are likely to be made, and to plan to use these efficiently, for example, by investing the surplus or holding it over to meet a future deficit.

An example of a blank cashflow forecast statement is given below. The forecast contains columns for both predicted and actual cashflow. By comparing the two, it is possible to identify differences or variances from the plan, and to investigate these as they happen.

A cashflow forecast proforma

PERIOD (E.G. 4 WEEKS/MONTHS/ QUARTER)
	Budget	Actual	Budget	Actual
Orders: Net of VAT
Sales
Receipts Cash Sales From Debtors Other Revenue Sources
Total Receipt (A)
Purchases
Payments Cash Purchases To Creditors Wages/Salaries/PAYE Rent/Rate/Insurance Light/Heat/Power Transport/Packing Repairs/Renewals VAT – Net HP Payments/Leasing Charges Bank/Finance charge/Interest Sundry Expenses Tax Dividends Drawings/Fees Loan Repayments Capital Expenditure/Inflows Total Payments (B)
A – B = C or Cr B – A = - C or Dr
Bank balance at end of Cr D previous period brought fwd… Dr
Bank balance at end of period Cr
carried fwd to aggregate (C+D) Dr
Agreed overdraft facility

A projected balance sheet

A potential lender will also require information about:

· The total capital (money) needed by a business

· What the business intends to do with its capital

· How much of the owner’s money is being put into the firm

· Where the rest of the capital is to be raised from

This information is usually shown in the form of an opening balance sheet. A balance sheet is a statement of an organization’s assets and liabilities at a particular point in time. Assets will include premises, machinery, and equipment owned by the firm, and holdings of cash, bank deposits, or sales on credit. Liabilities refers to money owed by the business to other people and organizations, for example, bank loans, hire purchase, leasing agreements, or purchases made on credit.

Дата добавления: 2015-12-08