| Writing The Business Plan: Section 8 | |
The Cash Flow Projection shows how
cash is expected to flow in and out of your business. For you, it's an important
tool for cash flow management, letting you know when your expenditures are too
high or when you might want to arrange short term investments to deal with a
cash flow surplus. As part of your business plan, a Cash Flow Projection will
give you a much better idea of how much capital investment your business idea
needs. For a bank loans officer, the Cash Flow Projection offers evidence that
your business is a good credit risk and that there will be enough cash on hand
to make your business a good candidate for a line of credit or short term loan. Do not confuse a Cash Flow Projection with a Cash Flow Statement. The Cash
Flow Statement shows how cash has flowed in and out of your business. In other
words, it describes the cash flow that has occurred in the past. The Cash Flow
Projection shows the cash that is anticipated to be generated or expended over a
chosen period of time in the future. While both types of Cash Flow reports are important business
decision-making tools for businesses, we're only
concerned with the Cash Flow Projection in the business plan. You will want to
show Cash Flow Projections for each month over a one year period as part of the
Financial Plan portion of your business plan. There are three parts to the Cash Flow Projection. The first part details
your Cash Revenues. Enter your
estimated sales figures for each month. Remember that these are Cash Revenues;
you will only enter the sales that are collectible in cash during the specific
month you are dealing with. The second part is your Cash Disbursements. Take
the various expense categories from your ledger and list the cash expenditures
you actually expect to pay that month for each month. The third part of the Cash Flow Projection is the Reconciliation of Cash Revenues to Cash
Disbursements. As the word "reconciliation" suggests, this section
starts with an opening balance which is the carryover from the previous month's
operations. The current month's Revenues are added to this balance; the current
month's Disbursements are subtracted, and the adjusted cash flow balance is
carried over to the next month. Here is a template for a Cash Flow
Projection that you can use for your business plan (or later on when your
business is up and running): CASH FLOW PROJECTIONS
(Add row of monthly headings to cover one year period)
CASH REVENUES CASH DISBURSEMENTS RECONCILIATION OF CASH FLOW Remember, the Closing Cash Balance is carried over to the next month. Once again, to use
this template for your own business, you will need to delete and add the
appropriate Revenue and Disbursement categories that apply to your own
business. The main danger when putting together a Cash Flow Projection
is being over optimistic about your projected sales. Canada Business Service
Centres has an excellent article on
Sales Forecasting that will help you avoid this. It outlines the steps of Sales
Forecasting for a new business. Once you have your Cash Flow Projections completed, it's time to move on to
the Balance Sheet. Next page > The Balance
Sheet > Page 1,
2,
3,
4
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Revenue from Product Sales
Revenue from Service Sales
TOTAL CASH REVENUES
Cash Payments to Trade Suppliers
Management Draws
Salaries and Wages
Promotion Expense Paid
Professional Fees Paid
Rent/Mortgage Payments
Insurance Paid
Telecommunications Payments
Utilities Payments
TOTAL CASH DISBURSEMENTS
OPENING CASH BALANCE
ADD: TOTAL CASH REVENUES
DEDUCT: TOTAL CASH DISBURSEMENTS
CLOSING CASH BALANCE