Developing a Cash Flow Forecast

Cash Flow is an essential factor in the ongoing health of a business. Knowing how to maintain cash flow is essential to sustaining a successful business. But what exactly is cash flow? The 3 key components are:

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  Funds on hand at the beginning of any period
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  Funds received and spent during an ensuing period
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  Funds remaining at the end of that period

Keep in mind that cash is not profit. Profit is the difference between the total amount of money your business earns and all of its costs, usually assessed over a year or other trading period. Cash, on the other hand, is the amount of money you have on hand to pay debts. You can be showing a good profit and still not have enough cash to cover an immediate debt. Income and expenditure cash flows rarely coincide yet you must always be in a position to meet your scheduled payments. Cash flow management is basically about speeding up your inflows and slowing down your outflows. To achieve this requires planning, also known as a Cash Flow Forecast. The key elements of a Cash Flow Forecast are:

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  Receipts
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  Payments
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  Excess of receipts over payments
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  Opening bank balance
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  Closing bank balance

A Cash Flow Forecast will assist you with working capital management to meet your cash needs as well as applying for new financing. To learn more about creating a forecast for your business, visit http://www.simonsbitzer.com/ or call 782.3070 for details.