| ||||||||||||
 | ||||||||||||
| ||||||||||||
| ||||||||||||
 |  |
|
| ||||||||||||||||||||||||||||
|
Preparing a Cash Flow Forecast
Why Should You Prepare a Cash Flow Forecast?
A cash flow forecast shows the critical timing of cash coming in and cash going out during a certain period of time, normally a month or two. Preparing a monthly cash flow forecast provides you with the opportunity to show revenues the business expects to receive in cash and expenses the business expects to spend with cash. A cash flow differs from a budget forecast in that it does not show sales estimates or overhead expenses averaged across several months. Used properly, this will provide you with the means to keep your business decision-making on track and your inventory purchasing in control. It will also serve as an early warning indicator when your expenditures are running out of line or your sales or collections targets are not being met.
As the manager of your cash, a forecast gives you time to devise remedies for anticipated temporary cash shortfalls and ample opportunity to arrange short term investments in the event of temporary cash flow surpluses. For example, suppose your forecast shows that the business will be short of cash as it purchases inventory in anticipation of the peak sales period. A thoughtful and thorough cash flow forecast clearly show a bank loans officer (or yourself) what additional working capital, if any, the business may need and when, and offers evidence that there will be sufficient cash on hand to make the interest and principal payments for the inventory loan. Such a forecast enables the manager to agree upon the loan requirements with the bank before the inventory purchases are made Computer spreadsheet programs such as Microsoft Excel or any of a variety of full-faceted business software can be very useful for cash flow worksheet development.
Reliable cash flow projections can bring a sense of order and well-being to your business and more calm to your life. A very important tool owners/managers have available to control the financial aspects of their business is the cash flow worksheet .
|
|
