1. Created by Greg Kubin, CPA, CITP Cash Flow Projection Model Instructions

2. Created by Greg Kubin, CPA, CITP Introduction The basic idea of a Cash Flow Projection is designed to help business managers “see” into the future to make better decisions. The QuickBooks accounting system is important in order to record and summarize the actual transactions of the business for financial statements and income taxes. It is, however, somewhat like looking in the “rear view mirror”. Management decisions require a forward-looking perspective.

3. Created by Greg Kubin, CPA, CITP Introduction The Cash Flow Projection looks at the months ahead, trying to anticipate the inflows and outflows of cash. All projections rely on estimates and educated guesswork to some degree, and so they are always inherently inaccurate. They represent the best information available, however, and are an extremely valuable tool. Projections always involve a measure of uncertainty.

4. Created by Greg Kubin, CPA, CITP Introduction The HBB Cash Flow Projection Model is designed to cover 12 future months. The uncertainly level increases the further out you look, and often projecting cash flows for the 90 period ahead is more meaningful. The Model may be used for any period of months up to 12 months

5. Created by Greg Kubin, CPA, CITP Introduction The HBB Studio Cash Flow Projection Model (“The Model”) is developed in Microsoft Excel 2007 format, and is found under the file name : HBB Cash Flow Forecast – MASTER.xlsx

6. Created by Greg Kubin, CPA, CITP Introduction The Model is used to prepare a short-term projection of expected cash flows, based on anticipated orders and expenses. The Model consists of 5 “sheets” which are used to provide the necessary detail: Detail-Operating Expenses Detail-Outstanding Bids Detail-Orders Received Work In Process Summary of Cash Flows The individual sheets are accessed from the Tabs at the bottom of the Excel screen

7. Created by Greg Kubin, CPA, CITP Introduction The first step is to open the Model MASTER and immediately perform a “SAVE AS’ using a unique name for the new file, such as “Cash Flow Projection at 12-1-2010.xlsx”. This step assures that the master copy remains undamaged. Alternatively, you can open a copy of a previous projection that you’ve worked on and make changes to it.

8. Created by Greg Kubin, CPA, CITP Sources of Cash Flow As you begin work on a new projection the first stage is to project revenues from operations. Revenue projections are separated into 4 sections: 1)Work In Process 2)Orders Received 3)Outstanding Bids 4)Projected Additional Business Each section is progressively less certain and so we must project cash flows differently

9. Created by Greg Kubin, CPA, CITP Work In Process The first sheet is the Work In Process projection Work In Process is for orders that we have formally received and have either started production or are nearly ready to start. For these orders we are certain about the order total and have reasonable information on the time frames.

10. Created by Greg Kubin, CPA, CITP Work In Process First, Input the starting date for the Model The date should be the first day of a new month

11. Created by Greg Kubin, CPA, CITP Work In Process The date you enter will immediately set the column headers for all sheets in the model. The columns will automatically be set as the 12 months following the starting date

12. Created by Greg Kubin, CPA, CITP Work In Process Each sheet is color coded to show you were you may enter data Note the “Color Codes” table, which reminds you where you may enter new data and which cells are locked and therefore may not be changed.

13. Created by Greg Kubin, CPA, CITP Work In Process Next check the Downpayment % and Days To Collect inputs For WIP only the “Downpayment %” is used to calculate the “Unpaid Balance” column for each order. The model assumes that the deposit amount has already been received and therefore does to include the deposit in projected cash receipts

14. Created by Greg Kubin, CPA, CITP Work In Process Next check the Downpayment % and Days To Collect inputs The “Days To Collect” is used to determine the timing of collection for the remaining unpaid balance. It assumes that the balance will be collected at the date the project is complete (Start Date + Days to Complete) plus the number of days to collect. In the example shown collection of the $2,125 balance is assumed at 12-14-2010, 10 days after completion of the project.

15. Created by Greg Kubin, CPA, CITP Work In Process Work In Process requires you to review the current status of all orders currently in production The project start date and the days to complete are used to estimate the timing of the completion of the project. The order total is used to calculate the unpaid balance. Note, however, that the “Unpaid Balance” cell is available to input a number directly. You may use this option to override the 50% assumption in cases where the unpaid balance differs. “REMAINING Costs” is for entering additional costs for materials and sub-contract charges that are not yet in accounts payable.

16. Created by Greg Kubin, CPA, CITP Work In Process The green area to the right is a calculated region that determines the project cash flows by month for each Work In Process project and then totals each month. These totals will be carried forward automatically. In most cases you should leave this area alone, however the cells are not locked so that in unusual cases you can override the calculated amounts.

17. Created by Greg Kubin, CPA, CITP Work In Process There is another large region below the Work In Process input area which automatically calculates the material costs by month, based on the “REMAINING Costs” input for each project. These totals will automatically be carried forward also, and should be left alone. REMAINING Costs are assumed to occur in the month the project starts.

18. Created by Greg Kubin, CPA, CITP Orders Received The second sheet is the Orders Received projection (see tab at bottom of the model) Orders received is for firm orders that have not yet been put into production. You enter the descriptive information, dates, total project revenue and expected costs. The Model calculates the expected cash flows and the purchases of materials.

19. Created by Greg Kubin, CPA, CITP Orders Received The Starting Date originates from the Work In Process sheet The projection calculates cash inflows using the downpayment % and the start date, assuming that the downpayment will occur in the month that the project starts. Project costs are also calculated in the start month. Note that the cells in green are calculated, but you may enter a number directly to override the default calculations. Normally you will not do this.

20. Created by Greg Kubin, CPA, CITP Orders Received Once you’ve completed this form the summary totals will automatically be carried forward into the projection.

21. Created by Greg Kubin, CPA, CITP Outstanding Bids The third detail sheet is for outstanding bids. The projection model assumes that all bids entered here will become orders at the start date. You should use your judgment in choosing which orders to list since not all bids will succeed.

22. Created by Greg Kubin, CPA, CITP Outstanding Bids The behavior of this sheet is just like the Orders Received sheet If you would like to use a % method of a group of outstanding bids, you can list them as a group and manually calculate a % of those that will become orders.

23. Created by Greg Kubin, CPA, CITP Additional Cash Inflows There are several additional types of projected cash flows. To this point you’ve entered the: Work In Process Orders Received Outstanding Bids

24. Created by Greg Kubin, CPA, CITP Additional Cash Inflows Now we must consider Collections of Accounts Receivable Projected Additional Business Credit Line Advances Miscellaneous Sources of Cash

25. Created by Greg Kubin, CPA, CITP Additional Cash Inflows These are entered on the “Summary of Cash Flows” sheet at the front of the Model. The “Expected Collections-Accts Receivable” is simply a way to enter cash collections expected on orders that are already billed, but a balance remains unpaid. This information originates from QuickBooks and is entered in a summary amount.

26. Created by Greg Kubin, CPA, CITP Additional Cash Inflows The “Projected Additional Business” is a way to enter a more general estimate of future business that is not covered by the various detail sheets. This is particularly important in projecting beyond approximately 2 months, where bids have not yet been issued.

27. Created by Greg Kubin, CPA, CITP Additional Cash Inflows The Credit Line Advances is generally used later, after all projected Sources of Cash and Uses of Cash have been entered and you can see what the expected cash level is in future months. This line is used to draw from the Credit Line to equalize the cash levels.

28. Created by Greg Kubin, CPA, CITP Additional Cash Inflows The Other Sources line is a way to enter any unusual items that are sources of cash, such as additional contributions by members or short- term loans.

29. Created by Greg Kubin, CPA, CITP Operating Expenses The next sheet is the Operating Expenses You should refer to your QuickBooks financial statements for guidance on these costs. Remember that our focus here is “Cash Flow” or in this case uses of cash. We do not include items such as depreciation, which is non-cash.

30. Created by Greg Kubin, CPA, CITP Operating Expenses Some items (ie building lease) are fixed and predictable. Just enter it once and copy – paste it across the months. Other items require broad estimates. Consider which costs are seasonal (ie utilities), and which will increase with business level.

31. Created by Greg Kubin, CPA, CITP Operating Expenses Remember that you only need to enter for months that you are projecting for. If you are only interested in a 90 day projection you don’t need to project operating expenses for more than the 3 months.

32. Created by Greg Kubin, CPA, CITP Operating Expenses All totals by month will be automatically carried forward to the Summary of Cash Flows sheet.

33. Created by Greg Kubin, CPA, CITP Additional Cash Outflows Next we need to enter any additional Uses of Cash into the Summary of Cash Flows sheet.

34. Created by Greg Kubin, CPA, CITP Additional Cash Outflows The Current Accounts Payable amounts come from QuickBooks for invoices that are unpaid at the date of the projection.

35. Created by Greg Kubin, CPA, CITP Additional Cash Outflows The VISA payments line is simply a place to enter the cash required for the next VISA bill.

36. Created by Greg Kubin, CPA, CITP Additional Cash Outflows The other 4 lines shown below are for special Uses of Cash. If you know that you are planning to buy additional capital assets enter the cost in the Equipment and Factory Purchases line.

37. Created by Greg Kubin, CPA, CITP Additional Cash Outflows The Credit Line Reductions line is typically left until you’ve entered all other Sources and Uses of cash. It is a place to record re-payments back to the bank to reduce the credit line balance.

38. Created by Greg Kubin, CPA, CITP Opening Balances Before you can use the results of the Model you must enter the Opening Balances for Cash (Checking) and the Credit Line.

39. Created by Greg Kubin, CPA, CITP Opening Balances Note: It’s very important that the Cash, Credit Line, Accounts Payable, and the Accounts Receivable balances all originate from the same date.

40. Created by Greg Kubin, CPA, CITP Members’ Draws One of the primary uses for a cash flow projection is to estimate the cash available for the members to draw. The Model summarizes all Uses of Cash and Sources of Cash, presenting a subtotal of the amount available for draws

41. Created by Greg Kubin, CPA, CITP Cash Flow Summary After completing all of the previous steps it’s time to study the summary results. Typically the process of projecting cash flows takes a little back and forth adjustment. Start by studying the Ending Cash Balance for each period in the projection.

42. Created by Greg Kubin, CPA, CITP Cash Flow Summary The Cash Balance should allow a comfortable cushion. Remember projections are approximate and so we don’t want to cut it too close.

43. Created by Greg Kubin, CPA, CITP Cash Flow Summary If the Ending Cash Balance needs adjustment consider: More Draws from Credit Line to raise cash Payback to the Credit Line to reduce cash Changes in Members Draws … or a range of other possibilities.

44. Created by Greg Kubin, CPA, CITP Cash Flow Summary Note that the Model also projects a running balance on the credit line based on the starting balance, plus additional draws, less paybacks.

45. Created by Greg Kubin, CPA, CITP Closing Comments Like many processes the creation of useful cash flow projections takes time and practice. Initially it will seem like a tremendous amount of work, but with each successive pass it will become easier. The Model is dynamic. It can be updated quickly once you’re skilled with the process, and serves as a high-beam headlight to show you the road ahead.

46. Created by Greg Kubin, CPA, CITP Please don’t hesitate to ask for help if you have any questions or if anything appears incorrect.