Creating cash flow forecasts

Guest post by: Russell Bowyer
Become an Author

Free PDF Download
How to turn your prospects into paying customers - By Russell Bowyer

If you are looking to for advice on creating a cash flow forecast then here are a few tips and pointers. Firstly you need to distinguish between what is ‘Revenue and Expenditure' and what is ‘Cash Inflows and Cash Outflows'.

Let me explain this by way of an example:

When you raise a sales invoice to one of your customers there are differences between how this transaction affects profit and how the same transaction affects your bank balance and when.

Let's say you raised the invoice on 28 November 2009 and the invoice was for £1,000 (net of VAT or Sales Tax). For profit and loss purposes you would include £1,000 in the November profit and loss account, which is very straight forward and quite obvious really. However, when it comes to recording the ‘Cash-effect' of this same transaction you have to put a little more thought into how you record it.

Firstly, if you are a business that has to charge VAT or Sales Tax then the amount that you will receive (the Cash-Inflow) will be more than the £1,000. If the rate of VAT or Sales Tax was 15% then the amount of ‘Cash' you will receive into your bank account will be £1,150 and not the net amount of the invoice. Also, not all customers pay you straight away and in some cases customers can take months to pay you. So let's say that this particular customer pays you in 30-days time, which would be on 26 December 2009 (forgetting for the minute that this is in fact Boxing Day!). Therefore for cash flow purposes you would include £1,150 in the December cash flow forecast - giving you a timing difference.

Finally, you would then need to include the £150 as a ‘Cash-Out' part of your cash flow forecast when you paid the VAT/Sales Tax to your Government, which might not be until February 2010.

There are other complications that might come into play with your profit and loss versus your cash flows and you will have a similar complications associated with business expenditure and how these interact with ‘Cash-outflows'.

The best way to prepare a cash flow forecast is to spend a bit of time planning it and reviewing what actually goes on within your business. You will also need to consider any capital expenditure you might be planning and how this impacts on your cash flow and how the depreciation of these assets impacts on your profit and loss account.

How much cash does your business generate?

Cash flow forecast software

Cash Flow Forecasts

Part Two: Build a Financially Strong Nonprofit with Cash Flow Management

Cash Management

CASH FLOW - You're Forgiven for Misunderstanding the Term!

How to start a small business

Internet Cash Flow-Finding A Cash Flow Business

Cash Flow - Pinpointing the Issues and Fixing Working Capital Deficiencies - Part Two

Cash Flow for Real Estate Investors

Cash flow is king!

Why Exactly Is Cash Flow King? Avoid Business Rehab With Business Finance Financing Options

How businesses can beat the credit crisis

Financial Cash Flow Management: Tips to Improve the Cash Flow of Organization

Cash Flow Forecasting

How to create positive cash to leverage lump sales cycles

How Factoring Brokers Can Achieve Their Resolutions

Financial planning essential for business growth

5 Smart Simple Canadian Working Capital Cash Flow Financing Loan Techniques !

Business Growth Begins With your Employees

Home > Buying-A-Business > Russell Bowyer > Creating cash flow forecasts > Google +

Free PDF Download
How to turn your prospects into paying customers - By Russell Bowyer

About the Author: Russell Bowyer

RSS for Russell's articles - Visit Russell's website
I am an entrepreneur having started, bought and sold businesses since 1990. I have also advised hundreds of business on how to set up a business, how to grow a business and improve profits and how bext to structure a business. I now run, amoungst other things, a Business Blog and have just launched a Business Forum (We always welcome new members and their input and comments at the forum). With my wealth of business experience I have since written a number of business books and software, including Cash Flow Forecasting Software, Increase Profit Software, a No Money Down Book, Buying a Business Tool and others at my site Bowraven.com
Click here to visit Russell's website.

More from Russell Bowyer
Money for starting a business
Surviving the recession
A positive workout for your brain for business owners and wouldbe business owners alike
Keep cash flow to an optimum
Small business success

Share this article. Fund someone's dream.

Share this post and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Creating cash flow forecasts

Related Articles

Related Forum Posts

Share this article. Fund someone's dream.


Name:
Email: