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.
  

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