Cash Flow Forecast Template

Toolkits
Toolkits January 16, 2022

Cash Flow Forecast Template

This Cash Flow Forecast template provides a quick and easy way to compare your six-monthly forecast against actual sales revenue for your products or services. This template consists of two forms to cover a full twelve-month period.

You may often hear, “Cash flow considerations are for financial managers only”. This is the most common excuse cited by managers not related expressly to finance. They are more interested in getting work done and making their employees productive. What they have to realize is that cash flow is part of their job. They are the ones generating revenue for the company and authorizing payments. The technical nature of cash flow statements can be off-putting. A person not well-versed with accounting will have a hard time staying focused and making sense out of the numbers .

Yet, there are some interesting things you can find out about your management skills by studying the cash flow statement. Here, you don’t need an accountant’s perspective. You have to learn to interpret cash flow statements on your own and in a way that is relevant to what you do in the organization. Let’s look at some tips you can follow for this.

The Importance of Cash
The basic purpose of a cash flow statement is to show you how the cash inflows and outflows tally up. If the inflows are greater than the outflows, the company has a cash surplus. In the opposite case, the company is strapped for cash. Managers are more interested in the bottom line. In fact, most organizations reward their managers for improving the bottom-line. So, managers know that if they can increase the profits of the company, they are in for bonuses and a higher raise.

Do You Have Cash?
What they don’t understand is that cash, also known as liquidity, is as important as profit. If your company is highly profitable but doesn’t have any cash, how are you going to run day-to-day operations? There are expenses to be met, employees to be paid, etc. Companies facing losses can have a positive cash flow. So, the statement will show you whether you are spending beyond your means and if you should curb the expenditure.

Investment in Machinery
Given the business practices of today, businesses require a certain level of automation. There are machines for virtually every step of the production process. Yet, you cannot know if you are purchasing too much equipment unless you read the cash flow statement. The statement will help you see if your investment in machinery is delivering the results you were looking for and whether you have the cash to pay for the equipment in the first place.

Profits on Credit
Most businesses are happy to trade on credit provided the customer has a solid reputation. However, allowing too much credit means your company is not receiving enough cash on a regular basis. This means that most of your profits can rely on earnings that are yet to accrue. Unless the money actually comes into your business, you cannot be sure whether you will get it or not. Using the cash flow statement, you can decide whether you should reduce the time period you give to your debtors for paying up. You can also choose to restrict credit transactions to regular customers only.

Effect of Bank Loans
Loans can prove to be the undoing of a thriving business. If you don’t have the cash to pay the principal and interest, the bank is not going to wait to take necessary actions. You need to know whether the loan payments you are making are depleting a significant percentage of the cash your business is earning. If the loan payments are taking a huge chunk out of your cash, your business operation isn’t sustainable.

These are some of the helpful aspects you can learn from cash flow statements. The gist of this is that you need to have cash to continue managing the company. Low liquidity may lead to non-payment of overhead expenses.

As a manager, you will usually be expected to understand basic accounting concepts and communicate effectively with financial people in your own organization. You may also be asked to contribute financial data about your own business unit. The basic principles of accounting are best understood by considering some simple businesses and how they might document their financial activities.

Accrual accounting is considered to be the standard accounting practice for most organizations, and is mandated for organizations of any real size. It provides a more accurate financial picture, but is more difficult to administer. Terms like ‘revenue,’ ‘expenses,’ ‘gross profit,’ ‘depreciation,’ ‘bad debt,’ and ‘fixed assets’ have precise definitions when used in business accounting. You will also need to understand exactly what is meant by accounting terms like these.