Ok so we're in a recession thats for sure and your company is now at the mercy of the consumer and possibly the dreaded exchange rates.
Your cash flow will determine whether you're a success or a failure. Even companies with full order books can go under if their cash flow isn't managed correctly.
A cashflow forecast shows cash coming in and cash going out during a certain month. Preparing a monthly cashflow forecast will provide you with the means to keep your business decision-making on track and your stock purchasing in control. The monthly forecast can then be extended to show the annual cashflow for your first year of trading.
This way you can look at the trend of the last few months and buy stock according to the trends that are appearing which helps to prevent you overstocking and suffocating your cash flow.
As well as bringing order to your business, your cash flow will also provide support for the feasibility of a loan for an equipment purchase or for a marketing campaign.
The forecast works on the following basic template: there are two columns for each month of cashflow – one is for the forecast and one is for actual cash flow (once you have started to trade). It is by comparing the forecast and cash flow columns that allows you to effectively assess how your business is running.
If your forecast matches your actual figures, business should be running smoothly; deviations between the forecast and the actual serve as indicators that you may need to address the situation if your expenditures are running out of line, or if your sales targets are not being met. This may involve devising remedies for anticipated cash shortfalls or arranging short-term investments for any temporary cashflow surpluses.
If you are starting a new business, you can find a realistic basis for estimating your monthly sales by using the average sales of a similar-sized competitor in a similar market. It is worth remembering, however, that in a start up year you should reduce your cash income figure by 50% per month for every start up month.
It is also crucial to the credibility of your plan that any sales made should only be entered once the cash is received in payment.
Similarly, when considering your cash outgoings, the chart should show only the cash you plan to pay out on each given months. Take, for example, insurance expenditure: your commercial premium might be, say £2,400 per year, which would average out to £200 monthly. However, this is not the case in terms of cash flow, which wants to know exactly how and when the money is going out. If it is being paid in two installments (say one in January and one in July), then it must be entered as such on your forecast chart.
We see, therefore, that the cash flow worksheet breaks into three distinctive sections. The first section is headed Cash Income (or Cash In). The second section is headed Cash Outgoings (or Cash Out). The final section, below that, is headed Reconciliation of Cashflow.
The reconciliation section begins by showing the balance carried over from the previous months' operations. To this it will add the total of the current month's income and subtract the total of the current month's outgoings. This adjusted balance will be carried forward to the opening balance of the next month to become the base to which the next month's cashflow activity will be added and/or subtracted. (The opening balance for any new business is Zero.)
Cashflow plans should constantly be modified as you learn new things about your business. And as you observe the deviations and discrepancies between your forecasted and actual figures, your strengths, weaknesses and patterns of cash flow should become increasingly apparent.
An example of how a cash flow sheet may be presented
Company: TheWholesaleForums.co.uk
April 2009 Cash Flow
Income:
Community Advertiser Sales £1000
Forum Advertisement Fees £550
Misc £34
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April Total Income: £1584
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Expenses:
Forum Hosting Fees £200
VBulletin License Renewal £80
Domain Renewal £10
Internet Access £29.99
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April Total Expense £319.99
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April Net Income +£1264.01
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BANK BALANCE +£42,493.32
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A good month for TWF (these figures are made up btw), this simple cash flow does not have a forecast but i would recommend doing this for your businesses sheet provided your outgoings and incomings have some kind of trend
Last edited by Buy360; 30-04-2009 at 07:06 PM.
Linear Mode
March 2010
