Welcome to Financial Series #3 The Cash Flow Forecast.

Slides:



Advertisements
Similar presentations
Financial Records & Statements Ch PoB 2011.
Advertisements

Cash Budget Forecast of cash inflows and outflows over the next short-term planning period Primary tool in short-term financial planning Helps determine.
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 0 Chapter 16 Short-Term Financial Planning.
Financial Management F OR A S MALL B USINESS. FINANCIAL MANAGEMENT 2 Welcome 1. Agenda 2. Ground Rules 3. Introductions.
Cash Flow Webinar April 25, :00 a.m. – 12:00 p.m. EST.
Chapter 11 – Forecasting and Short-Term Financial Planning  Learning Objectives  Understand how sales forecasts are used to predict cash inflow  Understand.
Copyright © 2010 Pearson Prentice Hall. All rights reserved. Chapter 12 Forecasting and Short-Term Financial Planning.
Statement of Cash Flows- First Approach
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. Statement of Cash Flows Chapter 13.
Key Concepts and Skills
Forecasting and Short-Term Financial Planning
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Short-Term Financial Planning Chapter 16.
Key Concepts and Skills
Statement of Cash Flows
© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Short-Term Finance and Planning Chapter Nineteen.
Welcome to Financial Series #2 The Balance Sheet
Financial Aspects of a Business Plan
Financial Forecasting and Cash Budgeting
Cash Flow Management For Non-Profits Presented by Theresa F. Weber Alexandria Consulting Team (ACT) LLC
Entrepreneurship: Ideas in Action © Cengage Learning/South-Western ChapterChapter Plan and Track Your Finances 9.1 Finance Your Business 9.2 Pro Forma.
FINANCIAL PLANNING: SHORT TERM AND LONG TERM 1 ENTREPRENEURIAL FINANCE.
McGraw-Hill/Irwin ©2001 The McGraw-Hill Companies All Rights Reserved 16.0 Chapter 16 Short-Term Financial Planning.
Short-Term Finance and Planning
Let’s Understand How Cash Flow Works!
Section 36.2 Financial Aspects of a Business Plan
PLAN PERFORM EVALUATE REPORT 1 Why Budget? If you know where you are going, you’re more likely to get there….
FINANCIAL RESOURCES MANAGEMENT
FINANCIAL STATEMENTS. Why Use Financial Statements? Investors and bankers Investors and bankers Suppliers and creditors Suppliers and creditors You and.
LESSON 12-2 Financial Records and Financial Statements
Financial Management Financial Planning
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE Financial Planning Financial Records.
Reporting and Analyzing Cash Flows Chapter 17. Purposes of the Statement of Cash Flows Designed to fulfill the following: – predict future cash flows.
McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved Chapter Thirteen: Statement of Cash Flows.
Statements of cash flows
BSAD 221 Introductory Financial Accounting Donna Gunn, CA.
3.5 Financial Accounts Chapter 22. What are ACCOUNTS? Financial records of business transactions which provide information to groups within and outside.
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 1 Financial Planning Financial Records and Financial Statements.
Entrepreneurship: Ideas in Action 5e © 2011 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible.
Financial Puzzle FINANCIAL STATEMENTS By PresenterMedia.com PresenterMedia.com.
Copyright 2003 Prentice Hall Publishing Company1 Chapter 10 Preparing a Statement of Cash Flows.
© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin STATEMENT OF CASH FLOWS Chapter 13.
McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Short-Term Finance and Planning Chapter 26.
Lim Sei cK.  Cash flow describes the movements of cash into and out of a business  When you look at the bank statement of any business, you soon.
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
Objective 4.01 Understanding Financial Management. 1.
FINANCIAL ACCOUNTING WEEK 11: LECTURE 11 Cash Flow Statement 1CHARA CHARALAMBOUS - CDA COLLEGE.
IGCSE Business Studies Cash Flow. What is meant by cash flow? Cash flow is the flow of cash in and out of a business, over a period of time. Cash inflows.
Welcome to Financial Series #7 Establish Budget. Your Hosts for Today’s Conference are: Gary Elekes in Nashville, Tennessee Gary Oetker in Plano, Texas.
Copyright © 2010 Pearson Prentice Hall. All rights reserved. Chapter 12 Forecasting and Short-Term Financial Planning.
CHAPTER 12 FINANCIAL MANAGEMENT Financial Planning FINANCIAL PLANNING Ongoing Operations Revenue – all income that a business receives over a period.
3-1 Copyright © 2009 Pearson Prentice Hall. All rights reserved. Chapter # 2 Financial Planning.
Lim Sei cK.  Cash flow describes the movements of cash into and out of a business  When you look at the bank statement of any business, you soon.
Management of Working Capital. Balance Sheet A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific.
CHAPTER 18 SHORT-TERM FINANCE AND PLANNING Copyright © 2016 by McGraw-Hill Global Education LLC. All rights reserved.
Forecasting Cash Flows Forecasting Cash Flows. Cash flow is important Cash flow is a dynamic and unpredictable part of life for a start-up or small business.
Cash Flow Forecasting. STARTER Think about the bill payer in your household. What things need to be paid each month? How are those bills paid for?
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE Financial Records and Financial Statements 12.
Financial management Developing an understanding of the role of financial planning within business operation.
Chapter 36 Financing the Business Section 36.1 Preparing Financial Documents Section 36.2 Financial Aspect of a Business Plan Section 36.1 Preparing Financial.
FINANCIAL RESOURCES MANAGEMENT
SHOPS is funded by the U.S. Agency for International Development. Abt Associates leads the project in collaboration with Banyan Global Jhpiego Marie Stopes.
Managing Business Finances
FINANCIAL RESOURCES MANAGEMENT
FINANCIAL PLANNING Beginning a business Startup Money source
Chapter 11 Statement of Cash Flows
FINANCIAL PLANNING Beginning a business Startup Money source
Financial Records and Financial Statements
MAINTAINING FINANCIAL INFORMATION
Presentation transcript:

Welcome to Financial Series #3 The Cash Flow Forecast

Your Hosts for Today’s Conference are: Gary Elekes in Nashville, Tennessee Gary Oetker in Plano, Texas

Conference Objectives:  Review Cash Flow Forecast fundamentals.  Review the key components of the Cash Flow Forecast and learn how to generate one.  Review the importance of the Cash Flow Forecast in the financial management of a business.

 Review the difference between profit and cash flow.  Review how profitable companies can become insolvent.  Review the Cash Flow Forecast equation.  Review Cash Inflow and the impact of Accounts Receivable.  Review Cash Outflow as it occurs in cost of sales, operating costs and balance sheet implications.  Review things that negatively affect cash flow. Agenda for Conference

 More businesses fail for lack of cash than for want of profit  Cash is the life-blood of a business. Without it the business dies.  The key challenge of any business is keeping more cash coming in than is going out  A Cash Flow Forecast is an important tool to control the financial aspects of a business Cash Is King!

 Many contractors do not think about cash needs until after they are overextended  May become past due with suppliers  May have problems making payroll  To try to borrow money in a frantic need is usually always a bad idea  Banks are less likely to loan money when a business is overextended Getting Into Trouble

 Most businesses equate success with sales volume and profit  A business can become insolvent in the middle of its best year in terms of sales and profits!  Be very careful of cash flow where the business is growing rapidly. Working Capital is needed to fund growth. Getting Into Trouble (cont)

Profit  Looks at revenue and expenses over a certain period of time Cash Flow  Looks at movement of money in and out of business Cash Flow Versus Profit

Cash Inflow Often Lags the Sale

 It’s the owner’s/general managers responsibility to monitor, measure, invest, borrow and collect enough money to operate the business  Management should predict future income and expenditures through budgeting and forecasting  Management should anticipate the cash needed to sustain the operation.  Management must arrange financing for cash flow short falls  Management should arrange short term investments for temporary cash flow surpluses Management & Cash Flow

 Starting Cash Balance  Plus Projected Cash Inflows  Minus Projected Cash Outlays  Equals Ending Cash Balance  A negative cash position is a shortfall or gap  A positive cash position is called free cash or cash surplus Cash Flow Forecast Equation

Cash Inflow  Cash Sale  Collection on Receivables  Borrowed Funds  Sale of Assets  Investment Income  Additional Input of Owner Equity Cash Inflow & Outflow Cash Outflow Paying Employee Wages Purchasing Materials for Jobs or inventory Operating Costs (Overhead Expenses) Paying Back Loans Cash Spent on Capital Expenditures Paying Taxes Owner Equity Withdrawn Examples

 A Cash Flow Forecast can be budgeted on a weekly, monthly, quarterly or yearly basis  It should be performed more frequently for businesses with peaks and valleys in revenue  It’s also critical for businesses were customer payments may be delayed  For new companies or ones with cash flow problems, the forecast should be done monthly How Often Should It Be Done?

 Cash Sales  Service Agreement Receipts (paid)  Cash Receipts from Financing Vendors  Current Receivables Collected – Cash Receipts  Receivable Collected Days  Receivable Collected Days  Receivable Collected Days  Receivable Collected Over 121 Days  Retainage Collected  Loan Payments Received  Interest Income  Warranty Return Credits from Vendors Cash Inflow - Detail Account for A/R aging. in your planning. Use history as a guide to collections

Accounts Receivable Aging

 Vendor Payment Equipment (payables)  Vendor Payment Parts & Material (payables)  Payroll and all Wages/Commissions  Sub-Contractor Costs  3 rd Party Extended Warranty Costs  Buydown/Financing Costs  Permits  Other Direct Cost Cash Outflow – Detail Cost of Sales

 All Other Payroll and Wages  Payroll Taxes  Worker’s Compensation Insurance  Group Medical Insurance  401K Employer Contribution  Self Funded Workers Comp  Cash Outflow – Detail Operating Costs - All Other Overhead Line Item Accounts on Income Statement - Less Depreciation

 Payment for Accrued Liabilities (reserves)  Payments for Capital Expenditures  Loan Principle Payment  Owner’s Withdrawal  Other Cash Outlays Cash Outflow – Detail Balance Sheet Implications

 Excess Inventory  Credit Policy  Require Down Payment on Jobs, Balance Due Upon Completion  COD on Residential Service Calls  Accounts Receivable  Poor Collection Processes  Credit Terms Things That Negatively Affect Cash Flow

 External Financing Sources  Revolving Lines of Credit  Bank Loans  Trade Credit  Bring Additional Equity Into Business Be Very Careful When Taking Profits Out of the Business. Profits Provide the Working Capital for Growth. Filling Cash Flow Gaps

Cash Flow Forecast Tool – Inflow

Cash Flow Forecast Tool – Outflow Positive Net Cash Indicates a Surplus Negative Net Cash Indicates a Shortage

 Make sure you are realistic about cash inflow (money not promises)  Be realistic in terms of sales and cost of sales projections (avoid being too optimistic in terms of generating sales or keeping direct costs low)  It’s useful to prepare “best case” and “worst case plans  Involve your people in this planning process Words of Advice

 Summarizes the Impact of all Activities on the Business  Shows How Much Money is Required at Any Given Time to Finance all Activities  Gives an Early Warning of Cash Flow Gaps so Management Can Readily Adapt  Gives Confidence to Outsiders Who Might Be Called Upon To Assist In Financing Cash Flow Forecast

Do not expect to be perfect when you start. Here are some things to help you get better:  If you do not have the information in the beginning, make your best assumptions  Review the actual results for the month against the forecast  Review any significant variance  Update the forecast to reflect new activities that will affect cash flow Keep at it! You’ll Get Better At It

That’s A Subject for Another Coaching Conference Cash Management

Q uestions & A nswers