Sunday 21 June 2009

Calculating Cashflow and Cashflow Planning

Calculating Cashflow:

Normally, the main sources of cash inflows to a business are
  • receipts from sales,
  • increases in bank loans,
  • proceeds of share issues and asset disposals, and
  • other income such as interest earned.

Cash outflows include
  • payments to suppliers and staff,
  • capital and interest repayments for loans,
  • dividends,
  • taxation and
  • capital expenditure.

Net cash flow is the difference between the inflows and outflows within a given period.

  • A projected cumulative positive net cash flow over several periods highlights the capacity of a business to generate surplus cash and, conversely,
  • a cumulative negative cash flow indicates the amount of additional cash required to sustain the business.

Cashflow planning:

Cashflow planning entails

  • forecasting and tabulating all significant cash inflows relating to sales, new loans, interest received etc. and
  • then analyzing in detail the timing of expected payments relating to suppliers, wages, other expenses, capital expenditure, loan repayments, dividends, tax, interest payments etc.
  • The difference between the cash in- and out-flows within a given period indicates the net cash flow.
  • When this net cash flow is added to or subtracted from opening bank balances, any likely short-term bank funding requirements can be ascertained.
If you need to produce regularly-updated cashflow projections, have a look at Cashflow Plan, our range of fully-integrated cashflow planners which generate projections for 12 months ahead and incorporate a roll-forward facility to simplify updating of projections. Details and free/trial version downloads.

http://www.planware.org/cashflowforecast.htm

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