Cash Flow Forecasting

April 13, 2006

	Visited: 152
	Not rated
	Rate:

All new businesses should prepare a monthly cash flow forecast for the first year and an annual forecast for the first five years of the business.

Included among the Business Tools is a monthly cash flow worksheet. The worksheet is an Excel template that can be used in Excel 4.0 or higher. Because it's a template, you can use the worksheet over and over again and still retain an original copy of it.

The worksheet is set up to be used for forecasting your cash flow for the individual six months for your new business. We've formatted the worksheet and put in most of the cash inflow (income) and outflow (expenses) categories for you. All you have to do is put in your numbers and print it.

Once you've downloaded the worksheet, feel free to modify it to fit your own needs.

Let's take a look at a table of how those tools might be used to forecast your cash flow.

Suppose the following:

Sales	$287,000	Rounded.
Cost of sales	- $143,500	Trade data shows that 50 percent of sales price is food cost.
Operating exp.	- $104,664	Four times the 90 days' working capital.
Debt payments	- $10,000	$50,000 note due over five years.
Net cash	= $28,836	Approximate cash generation for one year.

What happens to this cash flow if sales are 10 percent less? If sales are only $258,300, then the net cash would only be $136 instead of the $28,836. Would this affect your decision to open your new business? Take this a step further. What if sales were down 10 percent and the cost of sales was 60 percent of sales instead of 50 percent ($258,300 x 60% = $154,980)? This would put you in a negative cash flow for your first year of operations by $1,732 ($258,300 - 154,980 - 104,664 - 10,000 =(11,344)).

Remember, this example does not provide any cash for the owner to live on. The example provides only the cash requirements for the business.

Enough gloom and doom. Switch all those what-ifs around and you will have a positive cash flow of $83,848 (sales $315,700, cost of sales $126,280).

Our discussion of managing your cash flow provides more information on managing, understanding, and analyzing your business cash flows.