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Cash Forecasts Needed Information

Cash Forecasts > Developing Your Forecast
What information do you need ?

Using your actual historical Financial Statements, analyses, and other financial information:
  • Prepare and use an Analysis of Prior Periods Actual Yearly and Monthly Sales Patterns
  • Prepare and use an Analysis of Prior Periods Actual Yearly and Monthly Sales Credit Terms and Collection Patterns
  • Prepare and use an Analysis of Prior Periods Actual Yearly and Monthly Purchases Credit Terms and Payments Patterns
  • Prepare and use an Analysis of Prior Periods Actual Relationships of your Costs and Expenses to Sales.

Financial Statements
Much of the information that you need to use as a starting point to base your estimates on for your Cash Projection is contained in and provided by your Income Statements and Balance Sheets. You do prepare these statements or have them prepared for you by your accountant or bookkeeping service don't you ? I hope you answered yes - if not I recommend that you start. These statements should be accurate and preferable prepared on a monthly basis.

You should normally analyze and use the information contained in these statements for more than one year in order to recognize your trends such as sales increases and seasonal peaks and valleys.

In addition, you should already have or prepare analyses of your collection and payment patterns and the relationships of your costs and expenses to sales. These analysis, while not absolutely necessary, should if possible be based on several years worth of historical information in order to recognize trends applicable to your business.

Future Plans
Using your actual financial information and analyses as a guide, you need to "tweak" your figures to arrive at your final estimated amounts that you will use in your Cash Forecast. What do I mean by "tweak" ? All this means is adjust. While historical information is useful, things change and any foreseen changes should be considered and used in preparing your future estimates.

This is similar to using a household blender where you blend in different ingredients to prepare your favorite beverage of choice. In this case, we're blending our prior historical information with our future plans in order to arrive at our best guess of what will occur in the future.

What if you're a start up business and don't have any financial history ? In this case, your job is a little more difficult but still needs to be done. You need to research and obtain information about typical sales, salaries, and expenses from published sources of what actual typical sales and expenses are for your particular size and type of business.

What Type Of Questions Do You Need To Think About ?
  • What sales and/or % of sales increase do you expect for the future ?
  • Do you anticipate increasing or decreasing your selling prices ?
  • What is the current state of the market for your type of products or services ?
  • If you anticipate increasing sales will you need additional employees or space ?
  • What is your percentage of cash sales to credit sales ?
  • What are my current Gross Margin Percentages and Cost as a % of Sales By Product Line ?
  • What is my current Sales Mix ?
    Sales mix is just a fancy term that describes what the percentage is for each of your main product groups or categories compared to your total sales.
  • What payment terms are you currently providing to your customers and any plans for changing these terms ?
  • What payment terms are your suppliers providing you and do you anticipate any changes ?
  • Do you anticipate any cost increases for any of your products supplied by your suppliers ?
  • What plans do you have for raises or adding any additional employee benefits ?
  • How often are your employees paid (weekly, bi-weekly, monthly, etc) ?
  • What is the interest and principal payments on current loans and do you anticipate needing any additional loans ?
  • How much inventory do you need on hand to meet your current sales volume and will you need to increase or decrease this level ?
  • What plans if any do you have for purchasing additional equipment ?
  • How are your operating expenses related to your sales ?

What's next ?

Sales and Collections
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