How+do+I+create+a+cash+forecast

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= [|How Do I Create A Cash Flow Forecast?] = May 31, 2010 by Elizabeth Mawby [|Cash Flow], [|cash flow forecast]   [|24 Comments]

As discussed in my previous blog, cash flow forecasting is a key management tool in any business. But how do you prepare a cash flow forecast? Forecasts can be as simple or as complicated as business needs dictate. For the purposes of this article, I’m going to keep the forecast fairly simple. A basic cash flow forecast will take a few hours to create, and then another hour or so each week to update. This of course depends on your proficiency with Excel, or your willingness to part with your precious cash to purchase one of the many cash flow forecasting tools available – personally I prefer Excel as it enables full control over content and presentation so I can tailor the forecast to the particular needs of my business. There are 5 steps in creating a cash flow forecast:

// Step 1 Prepare a list of assumptions //
Forecasts are driven by assumptions and therefore for the forecast to be useful the underlying assumptions must be appropriate to the business. Assumptions can be based on past performance, industry publications, correspondence from customers and suppliers, etc. and generally include: · Timing and quantum of price increases – both yours and your suppliers’ · Sales growth estimates · Impact of seasonality · Provision for general cost increases (CPI) · Provision for internal salary and wage increases Listing the assumptions within the forecast adds credibility serves as a reminder when assessing actual performance against forecast.

// Step 2 Prepare anticipated sales income //
Sales can be difficult to predict, and often the best place to start is to look at sales in previous years to identify trends. You can then identify internal (e.g. price increases) and external (e.g. economic) factors likely to impact the current period, and make necessary adjustments. When you have determined realistic sales for the period, they need to be broken down into sales receipts (i.e. When is the cash expected to be collected from debtors?). There is often a pattern to debtor remittance (e.g. 60% within terms, 25% one month outside terms with the remainder coming in shortly thereafter). Note: this pattern should form one of the forecast’s underlying assumptions.

// Step 3 Prepare a list of ‘other’ estimated cash inflows //
To ensure your cash flow forecast is complete, compile a list of all other anticipated cash inflows, for example:
 * GST rebates and tax refunds
 * Insurance proceeds
 * Additional equity contributions or loan proceeds
 * Government grants receipts
 * Cash from asset divestment
 * Royalties or franchise/license fees

// Step 4 Prepare a list of estimated expenses //
These should include direct and indirect expenses. The key is identifying all the expenses required to operate the business and anticipating the timing of each payment. Cash outflows relating to financing and investing activites should be included, for example: Bank statements are an easy way of identifying direct debit arrangements.
 * Payments to suppliers
 * Wages and salaries of all staff
 * Purchase of new assets
 * Loan repayments
 * Director drawings

// Step 4 Putting the information together //
Simply put, a cash flow forecast is a rolling calculation based an opening cash position, adding cash inflows and deducting cash outflows, to arrive at a closing cash position. Click on the link below to view a sample template: Cash Flow Model Template.zip Finally, it’s always a good idea to run some ‘what-if’ scenarios on the completed forecast to determine how much capacity your business has to with-stand unforeseen events. Stay tuned for my next blog when I talk about the next logical step – optimising your cash flow forecast. // [|Elizabeth Mawby] is an executive of Vantage Performance, one of Australia’s leading turnaround management and profit improvement firms – solving complex problems for businesses experiencing major change. // ** Other business related posts you might want to read: ** [|7 More Top Tips on Cash Flow Management] [|Cash Flow Forecast .. Why do it?] [|What Con The Fruiterer Can Teach Your Business About Cash Flow]

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24 Comments > > > > > > [|http://www.foodsupplementdigest.com] “> >
 * 1)  Pingback: [|12 Steps to Maintaining a Cash Flow Forecast | Vantage Performance]
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 * 1)   [[image:http://0.gravatar.com/avatar/059e1aa9c910bf43e50e324da32e0c18?s=60&d=mm&r=g width="60" height="60"]]   Emory Tyminski July 23, 2012 at 10:22 pm  [|Reply]    I always read and also watch about current events. Current events helps me to be updated about everything from entertainment to technology. ::`.’ Thanks again

>> >> Thank you for your comment. Staying abreast of current issues and incorporating this knowledge in your cash flow forecasting, together with mitigating strategies, will go along way to ensuring your business is prepared when challanges lie ahead. >> >> Elizabeth >>
 * [[image:http://2.gravatar.com/avatar/2f7ca7c42d07232c68cf694029076bb6?s=60&d=mm&r=g width="60" height="60"]]   [|Elizabeth]  August 14, 2012 at 10:29 am  [|Reply]    Hi Emory,

> > >
 * 1)  Pingback: [|Focus on Cash Flow (Part 2): Optimising Supplier Management | Business Strategy Blog]
 * 1)  Pingback: [|Economic Current Event | Living History]
 * 1)   [[image:http://2.gravatar.com/avatar/b1f59c0d9a7fad731d0a47b7ed459ccf?s=60&d=mm&r=g width="60" height="60"]]   Violet January 16, 2012 at 1:24 pm  [|Reply]    You mentioned 13 weeks cash flow forcast for a few times in your different post. Do you have a template of it?

>> >> Unfortunately I’m not able to send you an editable version of the template. Please feel free to use the suggested format to create your own template in Excel (or other spreadsheet). >> >> Kind regards, >> >> Elizabeth >>
 * [[image:http://2.gravatar.com/avatar/2f7ca7c42d07232c68cf694029076bb6?s=60&d=mm&r=g width="60" height="60"]]   [|Elizabeth]  August 14, 2012 at 10:22 am  [|Reply]    Hi Violet,

> > >
 * 1)  Pingback: [|What a Slowdown in China Means for Australian Business | Business Strategy Blog]
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 * 1)   [[image:http://1.gravatar.com/avatar/d7cabd3f381118ec359cc5951bde0df0?s=60&d=mm&r=g width="60" height="60"]]   Maria May 24, 2011 at 7:48 am  [|Reply]    If someone’s never used excel, how does this compare to Quickbooks software?

>>
 * [[image:http://2.gravatar.com/avatar/2f7ca7c42d07232c68cf694029076bb6?s=60&d=mm&r=g width="60" height="60"]]   [|Elizabeth]  June 13, 2011 at 4:10 pm  [|Reply]    Hi Maria, thank you for your comment. When it comes to cash flow forecasting I prefer Excel to Quickbooks – every business has its own peculiarities and the flexibility Excel offers enables me to tailor the forecast to the particular business I’m working with. Excel is an extremely powerful business tool, in my experience many SME owners and managers under-estimate its functionality – I highly recommend giving it a go!

> > > post to my blog? >
 * 1)  Pingback: [|5 Steps To Help Your Business Recover From Disaster | Business Strategy Blog]
 * 1)   [[image:http://2.gravatar.com/avatar/20629d39a9a8d605247d01966ad8760a?s=60&d=mm&r=g width="60" height="60"]]    [|potenzmittel fuer die frau]  <span class="comment-date post-info-color" style="color: #797979; font-family: 'Droid Serif'; vertical-align: baseline;">November 12, 2010 at 5:49 am  [|Reply]    Wow! Thank you! I always wanted to write in my site something like that. Can I take part of your

>> >> Cheers, >> >> Elizabeth >>
 * [[image:http://2.gravatar.com/avatar/2f7ca7c42d07232c68cf694029076bb6?s=60&d=mm&r=g width="60" height="60"]]   [|Elizabeth]  <span class="comment-date post-info-color" style="color: #797979; font-family: 'Droid Serif'; vertical-align: baseline;">November 23, 2010 at 5:02 pm  [|Reply]    Absolutely! I would appreciate if you kept the wording as is and include a link back to my blog.

> I took the liberty in downloading your cash flow template, I was a big help in our assignment in my college class. Even the professor was impressed with my assignment..Thanks for the big help. >
 * 1)   [[image:http://1.gravatar.com/avatar/7a22da86639d1c4bf76c11379c6320cf?s=60&d=mm&r=g width="60" height="60"]]    [|Catherine@Provillus]  <span class="comment-date post-info-color" style="color: #797979; font-family: 'Droid Serif'; vertical-align: baseline;">October 3, 2010 at 6:32 pm  [|Reply]    Hi Ma’am Elizabeth,

>>
 * [[image:http://2.gravatar.com/avatar/2f7ca7c42d07232c68cf694029076bb6?s=60&d=mm&r=g width="60" height="60"]]   [|Elizabeth]  <span class="comment-date post-info-color" style="color: #797979; font-family: 'Droid Serif'; vertical-align: baseline;">June 13, 2011 at 4:11 pm  [|Reply]    Hi Catherine, thank you for your comment you are very welcome!

> > I was just wondering how often you revisit your cash flow forecasts to adjust them? Or is that something you don’t really bother with once they’re made? >
 * 1)  Pingback: [|Europe’s Banking Sector Woes Will Make It Tough For Aussie SMEs | Business Strategy Blog]
 * 1)   [[image:http://1.gravatar.com/avatar/42adc0982871984842dd4f1a82c34bf2?s=60&d=mm&r=g width="60" height="60"]]    [|Jan @ 15LV505]  <span class="comment-date post-info-color" style="color: #797979; font-family: 'Droid Serif'; vertical-align: baseline;">September 13, 2010 at 3:11 am  [|Reply]    Hey Elizabeth,

>> For cash flow forecasts to be a meaningful tool in the decision making process they need to be updated and flex-tested regularly. In my experience a rolling 13 week cash flow forecast provides management with sufficient visibility to plan for working capital requirements – in particular anticipated periods of cash shortage. >> >> The 13 week cash flow forecast should compliment the annual cash flow forecast, with the annual forecast being updated from time to time – maybe as part of a monthly or quarterly management report. >>
 * [[image:http://2.gravatar.com/avatar/2f7ca7c42d07232c68cf694029076bb6?s=60&d=mm&r=g width="60" height="60"]]   [|Elizabeth]  <span class="comment-date post-info-color" style="color: #797979; font-family: 'Droid Serif'; vertical-align: baseline;">September 21, 2010 at 6:08 pm  [|Reply]    Hi Jan,

> >
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 * 1)  Pingback: [|Massive Cash Flow Pack with Marketing, Godfather Principles and eCommerce for Mineral Make-up Businesses 3 CD Power Pack | Cosmetology and Beauty Careers]

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