Putting it all Together

Cash Receipts and Cash Disbursements

In order to see the full picture of the business’ cash flow, the forecasted receipts and disbursements must be put together.  Normally, a forecast begins with the cash balance at the beginning of the forecast period.  This is usually an actual amount.  The forecasted receipts are added to the opening cash balance and the forecasted expenditures re subtracted.  The resulting amount may be positive cash available for the subsequent period or a shortfall that needs be addressed. 

Positive cash does not necessarily mean that it is excess cash to the business.  It could be part of the business cycle that the business has a significant amount of cash at certain times of the year. Similarly, a cash shortfall does not necessarily mean the business will fail.  Cash shortfalls are common during start up periods and even if the business has little sales activities at certain times of the year. In either case, it is prudent to manage the cash flow forecast in the context of what you expect to see happen for the business.  If the cash flow forecast is indicating a condition that is not otherwise normal for the business, that is the time the manager needs to pay additional attention and determine whether action is necessary.

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