Question

How do you forecast the items on the cash flows statement for future periods? Please add an example.

Answer 1

A cash flow forecast is the most important business tool for every business. The forecast will tell you if your business will have enough cash to run the business. A cash flow forecast shows if a entity needs to borrow, how much, when, and how it will repay the loan. A cash flow forecast aims to provide a business with an estimate of incoming and outgoing cash over the course of a given time period.

We forecast the item on the cash flow statement for future period discussed as follows:

• Start with the amount of cash in business has at the beginning of the period
• Estimate how much cash will come into business next period. Incoming cash may be include revenue, previous sales made on credit, and loans. We forecast future sales by looking our past trend. Take into account any new factors for estimating any new product to be added in future.
• Estimate all expenses that we will paid in next period considering both variables and fixed cost. Fixed cost will not change by sales where variable cost are changed proportionate of sales volume.
• Subtracting estimated expenses from estimated income, the resulting number is our business cash flow.
• Adding this cash flow in our opening cash flow this will give our closing cash balance.
• Repeat this process for every item for next period’s projected cash flow.

Here is a cash flow projection example:

Projected cash flow statement

	January	February	March
Opening Balance	6,000	7,000	9,500
Cash In
Sales	19,000	20,000	16,000
Total	18,000	20,000	16,000
Cash Out
Materials	6,000	6,500	5,000
Marketing	3,000	2,500	3,000
Wages	4,000	4,500	3,500
Rent	4,000	4,000	4,000
Total	17,000	17,500	15,500
Cash Flow	1,000	2,500	500
Closing Balance	7,000	9,500	10,000