Cash Flow Forecasts and Planning

A budgeted cash flow forecast includes cash from external financing. Just one month in deficit can signal a cash flow crisis.

Planning Monthly Cash Flow

When planning any business using Figurewizard, the two most important questions to be answered by its forecasts are: How much cash and when? This is the job of the budgeted cash flow forecast, making it the most important component of any business plan.

Cash Flow and Stock Control

Cash flow forecasts showing deficits for one or more months, will need additional cash to remove them but before taking on more finance (only a short-term remedy not a solution) your planning should first concentrate on raising cash from operations, starting with stock control.

In this example, using the What-If Calculator to reduce year-end stock by stages of 20%; forecast cash flow, monthly high and low points for the bank plus undrawn and available financing and the bank at the year-end change as follows:

Stock less: Stock Value Months Overdrawn Max. Month Free Cash and Finance Min. Month Free Cash and Finance Cash and Finance Deficit Months Bank Year-End
0% 125,000 10 54,920 -16,263 2 -35,439
20% 100,000 7 75,235 -11,442 2 -10,250
40% 75,000 6 104,709 -6,621 2 14,238

Budgeted monthly free cash in this example represents net budgeted cash flow plus an agreed overdraft limit set at 50,000.

Reducing Purchases and Fixed Overheads

In this next example stock / inventory is again reduced in stages of 20% while fixed assets, which amount to 430,000 in the sample forecast are reduced by stages of 5%.

Fixed Overheads Stock Value Months Overdrawn Max. Month Free Cash and Finance Min. Month Free Cash and Finance Cash and Finance Deficit Months Bank Year-End
430,000 125,000 10 54,920 -16,263 2 -35,439
408,500 100,000 6 91,442 -4,539 1 11,417
387,000 75,000 5 127,866 7,185 0 57,546

Fixed oveheads and stock / inventory levels should only be a start. Variable overheads, expenditure on fixed assets (with or without asset finance) and the quality of your credit control can also play a major role in improving liquidity and cash flow.

Howevr your own figures work out, having accurate and reliable forecasts for cash flows as well as for profits will be important to a bank if additional finance is being sought, showing not just how much but for how long.

Budgeting for Dividends and Cash Flow

A budget is a plan and any plan will call for accurate forecasts. Uniquely this is what Figurewizard does, including when planning includes dividends to be issued.

This is the job of the Dividend Calculator and Planner. You simply enter the value of dividend to be issued and when and the system immediately reports updated forecasts for the bank, cash flows, liquidity and equity in real time. Everything else including VAT and corporation tax will have been re-calculated and taken into account.

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