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EXERCISE: PREPARING A CASH FLOW FORECAST Year 1 Forecast $ 96,000 48,000 48,000 Sales Purchases Gross profit Expenses Ad & Promo Auto Electricity Insurance Licenses Professional fees Rent/Lease Sub Contract (labour Telephone Total Expenses Net Profit 2,500 1,400 1,200 2,000 60 800 4,800 3,000 750 16,510 31,490 Notes/Assumptions Sales JAN: $0 FEB: $ 2,000 MAY: $ 8,000 JUN: $ 12,000 MAR: $ 4,000 JUL: $16,000 APR: $ 6,000 AUG: $ 16,000 MAY: $8,000 SEP: $ 12,000 JUN: $ 12,000 OCT: $ 10,000 JUL: $16,000 NOV: $6,000 AUG: $ 16,000 DEC:$ 4,000 Start-up warehouse inventory purchase - COD in January: $6,000* Purchases/GOGS Inventory ( 50% per sale) taken in month of sale, paid in 30 days Ad & Promo Jan - $1,000 May - $200 June - $500 July - $500 August - $300 Auto: $50 per month for gas_repairs $400 in June and Sep Electricity paid every 2nd month beginning in February, plus $100* installation deposit in Jan Insurance-paid in February Licenses - Business registration-January* Prof fees - $300 for Lawyer and $500 for Accountant in January* Rent/Lease - paid monthly (First and last month paid in January*) Sub-contract labour-half in July, half in August Telephone - $50/month. $150 installation fee* - Jan, plus $200 deposit* in Jan Owner's draw - $2,000 per month Computer & Software purchased in Jan. $4,000* Owner's Investment $10,000 at start-up denotes start-up cost Customer payment terms: BLUE Group - all sales cash GREEN Group -50% - Cash sales, 50% paid in 30 days RED Group - 50% paid in 30 days, 50% paid in 60 days YELLOW Group - all sales paid in 60 days B D E F G H 1 M N 0 P. R February March April May June July August September October November December TOTAL 1 CASH FLOW BUDGET PLANNER 2 Months January 3 Cash in: Current(COD) 4 30 days 5 60 days 6 90 days 7 Other 8 Investments 9 Loan proceeds 10 Total Cash In: 0 0 0 0 oool 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 12 Cash Out: 13 Purchases 14 Ad & Promo 15 Auto Expense 16 Electricity 17 Insurance 18 Licenses 19 Professional Fees 20 Rent 21 Sub-contracts 22 Telephone 23 Drawings 24 Computer 25 Misc 26 Bank Charges 27 Other 0 0 0 0 0 0 0 0 0 28 0 0 0 0 0 0 0 0 0 0 0 O 29 Total Cash Out 30 31 Cash In 32 Forward 3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Sheet1 Sheetz Sheets + Ready Scroll Lod 0 0 6 90 days 7 Other 8 Investments 9 Loan proceeds 10 Total Cash In: 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 12 Cash Out 13 Purchases 14 Ad & Promo 15 Auto Expense 16 Electricity 17 Insurance 18 Licenses 19 Professional Fees 20 Rent 21 Sub-contracts 22 Telephone 23 Drawings 24 Computer 25 Misc 26 Bank Charges 27 Other 28 29 Total Cash Out 30 31 Cash In 32 Forward 33 Available 34 Cash Out 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 35 Overl(Under 1 0 0 0 0 0 0 0 0 0 0 0 0 Shoct1 THE CASH FLOW FORECAST . Owner/Manager's most important financial tool. Uses the income/expense forecast and Start-up costs as a base addresses monthly flow of cash into and out of the business provides a guideline to use against actual results for management decisions helps identify/plan the best time for major purchases or when to cut back expenses the document bankers request to justify an operating line of credit indicates when the business will start making enough money to cover monthly expenses . How to prepare a Pro-Forma Cash Flow Forecast 1. Think in terms of cash into and out of the bank account, not when a sale is made, but when a customer actually pays. 2. Use the schedule of start-up costs and the sales and expense forecasts and think about any additional items or services that have to be purchased within the next 12 months. 3. Divide the forecasted sales into monthly amounts-adjust for seasonality fluctuations and "ramp-up" time that it takes to establish a customer base. 4. Calculate monthly amounts for expenses, not all will be equally divided over 12 months- for example insurance may be paid once or twice per year. 5. Include all start-up expenses in the first month and include the cash proceeds of your initial investment into the business it may be the payment of start-up costs). 6. Calculate the overage or shortfall each month. If there is a shortfall, how will you cover your expenses for that month? Are there any expenses you can move into the next month and how will that affect things in that next month 6. Calculate the overage or shortfall each month. If there is a shortfall, how will you cover your expenses for that month? Are there any expenses you can move into the next month and how will that affect things in that next month. 7. Remember to include the proceeds of any loans or investments into the business as a cash receipt 8. May be useful to create blank columns next to the forecasted ones to record actual results for comparison purposes. This will allow the manager to react more quickly effectively. 9. Even if the cash flow forecast is far different from the actual results, the comparison between the two sets of number provides information on which decisions can be made and changes initiated. EXERCISE: PREPARING A CASH FLOW FORECAST Year 1 Forecast