Cash Flow Forecasts

What’s the point?

Why you need them

It’s essential for businesses to know when income will be received and when bills will be paid.

This ensures sufficient cash is available It helps review actual figures against the budget Corrective action can be taken early Today’s decisions affect future cash flow next

They help when: Sales are lower than planned Debtors pay later than anticipated Bad debts are higher than forecast Interest rates rise Costs increase next

Difference between profit and cash

Profit = difference between the total amount your business

earns and all of its costs.

You may be able to forecast a good profit for the year yet still face times when you are strapped for cash.

next

Inflows Payment for goods/services from your

customers Receipt of a loan Interest on savings and investments Increased bank overdrafts/loans Next

Outflows Purchases of stock or tools Wages, rent and daily operating expenses Purchase of fixed assets (machinery,

PC’s, office furniture etc.) Loan repayments Income tax, VAT and other taxes Next

Improve cash flow by:

Asking customers to pay sooner Chase debts promptly Ask for extended credit terms Order less stock but more often Lease rather than buy (premises, tools) Next

Sales planning How many new customers do you gain each

year? How many customers do you lose each year? What is the average level of sales you make to

each customer? Are there particular months where you acquire

or lose more customers than usual? Next

New businesses have to make assumptions based on market research and good judgement.

Sales assumptions Every year is different You need to list any changing

circumstances that could significantly affect your sales.

These factors - known as the sales forecast assumptions - form the basis of your forecast.

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Your resources

The market

Your product

Your sales assumptions

Frequent Forecasting Mistakes

Wishful thinking Ignoring your own assumptions Moving goal posts No consultation No feedback Next

Projected Profit / Loss ScenarioP

ound

s (£

k’s)

Useful resources:

Tool: COBRA: accessed for free from Rise Up team in The Careers Service (market research tool)

Book: The Entrepreneurs Book of Checklists by Robert Ashton

www.startups.co.uk

www.businesslink.gov.uk