Forecast annual cash flow
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Forecasting your annual cash flow is one of the most demanding tasks
you will undertake in your business, and one of the most important as it will
form a key part of your business planning. Before securing a bank loan or approaching others for investment you
will need to present an annual cash flow forecast. Cash flow forecasting
involves tabulating all significant cash inflows, such as sales and interest
earned, then comparing this with any outgoings, such as tax and wages. The difference between the cash in-flows and out-flows within a given
period indicates the net cash flow. If you add or subtract the net cash flow
from your opening bank balance you can ascertain your likely funding
requirements. To forecast your annual cash flow you will need to: - Identify all in-going payments - include receipts from sales,
increases in bank loans, proceeds of share issues, returns from asset disposals
and interest earned
- Identify all out-goings - include payments to suppliers and
staff, capital and interest payments for loans, dividends, taxation and capital
expenditure
- Use the following equation to arrive at a figure for the year:
Starting Cash Balance + Projected Cash Inflows - Projected Cash Outflows = the
ending cash balance or project cash flow
Using a computerWith the aid of a computer
and suitable software, a mathematical model can be used to prepare cash-flow
projections and project banking requirements for your business. The use of a
computer-based model reduces the tedium of carrying out numerous repetitive
calculations and simplifies the alteration of assumptions and the presentation
of results.A computer-based package can be constructed using a spreadsheet or
acquired as a stand-alone package. If you decide to construct a spreadsheet
model, be aware that it is not as easy as it might seem to build a friendly,
robust and error-free planner.
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