This is an exercise but I am not sure am I right or wrong.

1. SUPPORT GUIDE FOR DEVELOPING A
CASH FLOW FORECAST
Cash flow forecasting
Cash Flow Forecasts vary, depending both on the business, and the level of detail you need for
your decision-making at that time. They may look slightly different in different parts of the world,
but they will include the same information and require the same process.
You may wish to draw up simpler forecasts yourself, or work with your finance team, particularly
if you are creating a highly detailed forecast.
You should also continually reflect and refine your forecasts as you develop your opportunity, to
make them more accurate.
This guide contains:
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2. A step by step guide to developing a Cash Flow Forecast
Step 1 – Clarifying the forecast period
Clarify the time period you want your forecast to cover. This is typically a year, but you may want to look in more detail at a shorter
period, or focus on longer term performance, depending on the nature and scale of the opportunity.
Your forecast should start in Month 1 for your opportunity, i.e. the first time money is received or spent. Example forecasts often
start in January, but this is simply illustrative – yours can start in the month relevant to your planning.
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTALS
2021
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3. Step 2 – Predicting cash receipts
You now add your business’s predicted cash receipts for each month. Remember, this is the actual cash you receive, not sales
which you have not been paid for yet. If you have customer payment terms, you will need to consider which months you will receive
the money for these sales. If it helps, add a line for sales volumes, but do not include this in your totals. The example forecast is in
US dollars, but you can use the currency your business works in.
You can add more rows if you receive different types of cash receipts, for example in store and online receipts, or cash and bank
payments.
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTALS
Cash receipts 387,600
387,600
387,600
387,600
000
387,600 387,600 387,600 1,550,400
Sales income ($) 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 1,550,400
Total ($) 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 1,550,400
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4. Step 3 – Predicting cash payments
Next you add predicted cash payments you will make to others. Remember that this is when they are actually paid, not invoiced.
The categories of these costs will be different for every business, so consider all elements of your operations, and where you will be
spending money:
• Will you have to make any large investments in assets such as land or machinery?
• What wages and labor costs will you have?
• Will you need to purchase raw materials or components from suppliers?
• What will your overheads be?
• Will you have any promotional or marketing costs?
• Remember to consider the impact of your credit terms and any other assumptions.
• Are there any taxes or fees that will need to be paid?
• Are all costs based on predicted figures, including any likely increases, rather than just repeating figures from previous
years?
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5. JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTALS
Cash receipts 387,600 387,600 387,600 387,600 1,550,400
Sales income ($) 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 1,550,400
Total ($) 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 1,550,400
Cash payments 600,000 285,263 285,263 285,263 285,263 11,81052
Capex ($) 600,000 600,000
Direct labor ($) 9,300 9,300 9,300 9,300 9,300 9,300 9,300 9,300 9,300 9,300 9,300 9,300 111,600
Indirect labor ($) 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 84,000
Current year
purchases of raw
materials ($)
41,344 41,344 41,344 41,344 41,344 41,344 41,344 41,344 41,344 41,344 41,344 41,344 496,128
Overheads ($) 40,777 40,777 40,777 40,777 40,777 40,777 40,777 40,777 40,777 40,777 40,777 40,777 489,324
Total expenses
($)
698,421 98,421 98,421 98,421 98,421 98,421 98,421 98,421 98,421 98,421 98,421 98,421 1,781,052
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6. Step 4 – Establishing your opening balance
When you begin a new opportunity, you will commonly have some initial money set aside, rather than be starting from a completely
empty account. This is your opening balance, and must be recorded on your Cash Flow Forecast.
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTALS
Cash receipts 55,000 387,600 387,600 387,600 387,600 1,550,400
Sales income ($) 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 1,550,400
Total ($) 184,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 2,100,400
Cash payments 600,000 285,263 285,263 285,263 285,263 11.81052
Capex ($) 600,000 600,000
Direct labor ($) 9,300 9,300 9,300 9,300 9,300 9,300 9,300 9,300 9,300 9,300 9,300 9,300 111,600
Indirect labor ($) 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 84,000
Current year
purchases of raw
materials ($)
41,344 41,344 41,344 41,344 41,344 41,344 41,344 41,344 41,344 41,344 41,344 41,344 496,128
Overheads ($) 40,777 40,777 40,777 40,777 40,777 40,777 40,777 40,777 40,777 40,777 40,777 40,777 489,324
Total expenses
($)
698,421 98,421 98,421 98,421 98,421 98,421 98,421 98,421 98,421 98,421 98,421 98,421 1,781,052
Opening
balance ($)
55,000
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7. Step 5 – Tracking your predicted cash flow
Nowthat you have predicted your incomings and outgoings and know your starting point, you can forecast the flow of cash through
your business.
For each month, subtract the total expenses from the total receipts. This is recorded on the movement line in the forecast, showing
how much your cash flow has changed that month.
You can then complete the rest of the opening balance line by adding or subtracting (as needed) the increase or decrease in cash
flowfrom the previous total. For example, in this Cash Flow Forecast, the opening balance is $55,000, and the movement that
month is -$569,211. Therefore, the resulting balance is -$514,221 ($55,000 - $569,211). This value is recorded both in the final
closing balance line of the forecast, and as the opening balance of the next month.
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8. JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTALS
Cash receipts
Sales income ($) 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 1,550,400
Total ($) 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 129,200 1,550,400
Cash payments
Capex ($) 600,000 600,000
Direct labor ($) 9,300 9,300 9,300 9,300 9,300 9,300 9,300 9,300 9,300 9,300 9,300 9,300 111,600
Indirect labor ($) 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 84,000
Current year
purchases of raw
materials ($)
41,344 41,344 41,344 41,344 41,344 41,344 41,344 41,344 41,344 41,344 41,344 41,344 496,128
Overheads ($) 40,777 40,777 40,777 40,777 40,777 40,777 40,777 40,777 40,777 40,777 40,777 40,777 489,324
Total expenses
($)
698,421 98,421 98,421 98,421 98,421 98,421 98,421 98,421 98,421 98,421 98,421 98,421 1,781,052
Opening balance
($)
55,000 -514,221 -483,442 -452,663 -421,884 -391,105 -360,326 -329,547 -298,768 -267,989 -237,210 -206,431 55,000
Movement ($) -569,221 30,779 30,779 30,779 30,779 30,779 30,779 30,779 30,779 30,779 30,779 30,779 -230,652
Closing balance
($)
-514,221 -483,442 -452,663 -421,884 -391,105 -360,326 -329,547 -298,768 -267,989 -237,210 -206,431 -175,652 -175,652
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9. Common issues checklist
Whilst every Cash Flow Forecast is different, there are some common mistakes and omissions. As you develop your Cash Flow
Forecast, check that you have managed each of the following appropriately:
• Is the time period appropriate?
• Is the format clear and appropriate? Have the correct categories been included?
• Is the opening balance consistent with the bank statement?
• Are key assumptions clearly established, and are they justified?
• Are the numbers internally consistent with the rest of your Business Growth Plan (BGP) and financial figures?
• Are all receipts and payments included?
• Are non-cash items excluded? (e.g. depreciation)
• Is the frequency with which the forecast is updated appropriate?
• Does the forecast include cash payments on loans and other liabilities?
• Have equity investments been included as needed?
• Is one forecast enough, or do you need to consider more than one for different scenarios?
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