Cash Flow Projection - PowerPoint

							Lesson 10-Managing Cash Flow
                                                           Introduction: Think about
            “Put all your eggs in one basket and--         your personal
                   WATCH THAT BASKET"                      expenses. How do you
                                                           know you will have enough
                                      ..                   money for your rent, car
                         .MarkTwain                        payment, entertainment,
                                                           etc.?


    Objective:
                Describe the significance and purpose of a cash flow projection and
    develop one for a business venture.
                Develop a cash management mindset and a strategy that fits the needs
    of your business venture.
  Lecture Point One:


        M             anagement of your cash flow is, perhaps, the most important financial

issue on your plate. Knowing where and when you will need money--and whether there is
enough money supply to cover those needs is the life-blood of your organization.
Your focus here should be to visualize the flow of cash like a faucet for cash coming in and
a drain for cash going out. The object is to increase the flow of the faucet and reduce the
flow of the drain. If you are successful at that, there will be an increasing amount of cash in
the sink, and that translates into more solvency and profit.

                        Cash management can take place in
                        countless ways. Here is a
                        cash management checklist that should
                        stimulate actions you can do in your
                        business to assure faster inflows and
                        slower outflows.

                        Your textbook has a very nice presentation
                        on actions you can do to effectively manage
                        cash flow in a business. To focus on those
                        key items, please go to Study Quiz #10.
 In-box                                                                    Out-box
     Lecture Point Two:

           T          he cash flow projection is the tool you will use to develop your strategy

  for the ensuing months' operations. It will clarify the flow of cash coming into and out of the
  business. Clearly, unless you are the government, you must have money coming into the
  business in order to have cash going out of your business. The cash flow projection will
  warn you about the months that this is not likely to happen, so you can begin planning early
  to develop alternatives to either acquire more cash or spend less.

  The worksheet functions much like your checkbook. Cash coming into your organization
  are recognized at the moment they enter the organization--just like your bank recognizes a
  payroll deposit into your checking account. Cash paid-out is recognized at the moment that
  checks are cashed against your account. If bills occur only once or four times a year, that is
  how they are projected on the cash flow--in the exact month they are paid. In this fashion,
  the business owner can get a clear picture of how much cash will be on-hand during any
  given month.
Annual Cash Needs:



Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.
T          here are basically three sections to calculate when developing your cash flow

projection. The first is estimating cash inflows. For this, you obviously consider cash sales,
and if you sell on account (other than credit cards), you will have receivables collected. In
some instances, you might also have income from interest and/or the sale of fixed
assets. These figures represent your "cash available" each month.

The second (and largest for most) is where you identify cash outflows. Whenever a check is
written, it represents an outflow: rent, salaries, inventory, utilities, etc. Be sure that you think
through when you will logically spend these amounts. Some payments, for example
insurance, might occur every third month (quarterly). Still others might be once a year--like
licenses. Just remember, the cash is only counted until it actually arrives, and in the same
fashion, is spent only when actually paid-out.

When identifying the monthly payments toward loan balances, separate the principle portion
from the interest portion. These projections can be acquired by accessing an interest rate
calculator. NOTE: when you reach the opening page, then complete the appropriate blanks
in the "calculator" dialog box and click on "complete
amortization table". This will provide a projection of principle and
interest payments for each month of the loan span. Note also
that the pull-down for the number of years has a selection
for "7". This is the typical loan-period for small business
loans.
F        inally, after you have totaled all your outgoing cash payments, you calculate the

difference between cash inflows and cash outflows to obtain "cash balance or deficiency". It
is very possible that during your first month of operation you will have much more outflow that
inflow (initial inventory purchases, equipment purchases, etc.). This will result in the need for
a cash infusion to the business.

This cash infusion will come from one or both of two potential sources: loans to the business
or equity deposits. Most small business owners have saved a significant amount of their
startup capital. This is an equity deposit. Other equity deposits can come from partners or
corporate investors. Borrowed funds from banks or private individuals might be required to
complete the cash need to bring a business into balance. These borrowed funds are what
you will calculate using the "mortgage calculator" I mentioned two paragraphs above.

Once you have included needed cash infusions through equity or debt arrangements, you
should have an ending cash balance for the month. This balance is carried forward to the
next month and becomes that month's beginning cash balance to which is added the cash
sales, receivables, etc. I have attempted to provide a line-by-line guide for the construction of
a cash flow statement in this Cash Flow Projection guide.

Your cash flow is similar in concept to a water faucet and
drain example. In order to keep a significant amount of
water in the sink, you must either restrict the outflow of the
water, or increase the inflow of water from the faucet. So,
once you get past the first month draught, your focus will
be on balancing these inflows and outflows to maintain a
positive balance.
F        or this lesson’s project, I have provided a simple cashflow worksheet that will assist you in

    the cash projection process. I’ve attempted to automate it as much as possible, but .
    Since the process is somewhat complicated, I’ve provided step-by-step instructions. Click
    here to acquire the instructions. Then, click on the link below. It will open a dialog box that
    will ask you where you want to save it. Once you have saved it to a convenient file, you can
    enter your projected figures in the spaces provided under each month of the year. Cash Flow
    Worksheet


NOTE: If the link doesn’t allow you to download the worksheet to your computer, you may need to
   go to the following link:

http://www.overture.com/d/search/p/netscape/?Keywords=visual+basic+run&Partner=netscapebox

then click on: Visual Basic 6.0 SP5: Run-Time Redistribution Pack (VBRun60sp5.exe) to
    download the exe software that will allow your computer to run Visual Basic.
H
                                                             To Cash Flow Worksheet
            ere are some step-by-step instructions that might be helpful:


1.   Click on the link above to get to the worksheet.
2.   Select where you want to save the form in your computer (desktop works well)
3.   Enter the name of your company in the space provided on the form.
4.   Use pull-down menu to select desired month-end date.
5.   Enter beginning cash amount (if any) new businesses are zero.
6.   Use pull-down menu to identify income sources, and enter Jan. amounts.
7.   Click on “Available Cash Bal.” button to add-up cash inflows.
8.   Use pull-down menu to identify expense areas, and enter Jan. amounts.
9.   Click on “Total Cash Outflows” button to add-up cash outflows.
10.  Click on “Cash Position” button to get difference between inflows and outflows.
11.  If Cash Position is negative, enter contributions (equity or loans or both).
12.  Click on “Ending Cash Bal.” button to get the month-end balance.
13.  Click on the “Beginning Cash Bal.” button (at top of form) to transfer Jan. end figure to
     beginning Feb. figure, and repeat steps 6 through 13 until you have reached Dec.
NOTE: You must click all 5 buttons in sequence (12 times) to be sure data columns have “rolled-
     over” and represent accurate end-of-year totals.
14. Click “Print” button (upper left-hand corner) to print the completed form.
15. To send the form to me, press the “Prt Sc” (print screen) button in the upper-right part of your
     keyboard to place it on your clipboard, then open your e-mail to me and paste it in the
     message portion (press control and V to do this).
If you are not done inserting data into the form, by clicking “Exit” the contents of the form will be
     saved to the C-drive of your computer. To retrieve the data, go to the original form saved to
     your desktop (#2 above), double-click on the icon-- when it appears, click “Retrieve”.
Cash Management Checklist

Banking:
Make deposits at least daily
Use night deposit facilities
Keep bank balance positive—avoid service charges
Put excess cash to work in interest-bearing account

Accounts Receivable:
Bill for sales and services promptly
Develop and enforce late-payment penalties
Use COD terms for chronic slow payers
Use progressive billing for partial deliveries
Turn over delinquent accounts to collection agencies

Inventory:
Limit purchases to those only needed by business
Get cash discounts for purchases
Dispose of slow-moving inventory

Expenses:
Pay insurance and large bills in installments
Consider leasing to avoid large cash outlays
Buy advertising to take advantage of media reductions
Develop barter arrangements for goods and services
Evaluate shipping to minimize freight costs