Consider Your Cash Receipts

Find a realistic basis for estimating your sales receipts each month.  For example, if your business can quantify its customer contracts and revenues from each contract, this could be the basis of your forecasted receipts.  Another method could be to review the cash receipts for the same period last year and increase or decrease them based upon what you know has changed in the business.  If you are dealing with the first year of new operations, one method could be to use the average monthly sales of a similar-sized competitor’s operations who is operating in a similar market.  However when dealing with new operations or the start up period of a new business it is wise to reduce your estimates by about 50% a month for the start-up months. There are also publications available in libraries and book stores that discuss methods of sales and cash collection forecasting.

It is critical to the credibility of your plan that any sales made should only be entered once the cash is received in payment. This is the critical test principle of the cash flow and should be applied whenever you are in doubt as to what amount to enter and when.

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