Cash is the lifeblood of an organization. Managing cash is as important as controlling expenses and generating revenues. Unless you can understand and plan for the timing of the actual cash that flows in and out it, is impossible to make effective decisions about spending, borrowing or expanding. An effective cash flow forecast will indicate to lenders or your investors what and when additional working capital maybe needed. This is key to establishing a good relationship with lenders and investors.

Cash flow is most often monitored and updated with new information on a monthly basis. Start with the cash on hand at the beginning of the period. Add projected receipts expected during the month from revenue or other sources. Subtract all projected disbursements by taking into consideration expenses, both operating and fixed and the credit terms established with suppliers. To prepare an accurate cash flow you need to consider some of the following:

• Projected revenues/fees by period
• Timing of receipts from clients-terms
• Projected operating expenses by period
• Inventory requirements and the timing of purchases
• How promptly must vendors be paid
• How often are employees paid
• Principal & Interest payments on any existing loans
• Planned capital asset purchases

Cash flow planning is a vital and dynamic exercise for any successful operation, as your ultimate success will most often have a lot to do with managing cash flow effectively. Generating a simple cash flow forecast is easily done using a spreadsheet. Speak with your professional advisor for assistance with a cash flow forecast.