This is a document that a business draws up to show the money predicted to come into and leave a business each month. The firm draws up a list of all the places where it will get money from RECEIPTS and what it will be spending it on COSTS.
In the example below the firm starts off in January with a loan for £20,000. The other place where it obtains money from is sales. You can see the amounts that it expects to earn each month - £500 in January, £700 in February etc.
It has the following expected costs rent for its premises, stock to sell, power for electricity and gas, telephone and wages to pay the workers. This is obviously a simple version but it includes the most common costs that a business faces.
You can see from the spreadsheet that you can put in a formula to calculate total revenue and total costs. The cash flow forecast also includes the following information:
Cash Flow forecasts are used to help a business predict how much money it will have over a period. This will enable it to anticipate any problems and make plans eg ask for an overdraft if it is likely to run out of money by a certain month. In the example below this is predicted to occur in April when the predicted closing balance becomes negative. A new business asking a bank for a loan is likely to be asked to produce one of these as part of its Business Plan to show the Bank Manager that it has thought carefully about its cash flow:
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(Click on the thumbnails to view the larger image)
A GRAPH SHOWING THE CLOSING BALANCE FOR THE FIRST SIX MONTHS
Business Plans
These have already been referred to. They give a bank manager, or anyone else who may lend a new business money, an idea of what the business is and where it is going. It will include details such as: