Financial Guide for SMEs - SME Corporation Malaysia

Financial Guide for SMEsCash Flow ForecastingA cash fl ow forecast is the most important tool forbusiness; cash flow planning is essential forbusiness success. The forecast will predict theability of your business to generate the cashnecessary for expansion or to support theoperations of the business. It will also indicate anycash fl ow gaps that the business may experience– periods when cash outflows exceed cashinflows. It uses estimated or real figures thatyou gather and add to a simple worksheet from theday you start the business. You can also developa cash fl ow forecast from existing information ifyou are already in business. After 12 months,you’ll have a good idea as to what your cashbalance will be, month by month for your next yearof operation.HINTRemember thatcash fl ow is all abouttiming and the fl owof cash, so whenpreparing your cashfl ow forecast, makesure you are asaccurate as possibleon the timing of thecash fl owsThere are a few ways to use a cash fl ow forecast as a planning tool:• In short-term planning, to identify when more cash is needed in a month,for example, when several large annual bills are due, and the cash in thebank is likely to be low.• In long-term planning, to fi nd where cash fl ow could affect the business,especially when you want to expand. For example, a school uniformretailer, after months of low trading volume with cash fl ow, has to buy newinventory, employ extra staff and advertise for back to school compaign.However they may also be planning to extend into the shop next door. Afterseveral lean months, the cash supply may be at its lowest, even withoutthe added expense of the new premises, so the cash fl ow would needcareful planning.The easiest way to prepare a cash fl ow forecast is to divide the forecast intosmaller areas and then bring all the information together at the end. The fi vesteps in preparing a cash fl ow forecast are:1.2.3.4.5.Prepare a list of assumptions.Prepare the anticipated income or sales for the business (called a salesforecast).Prepare details on any other estimated cash infl ows.Prepare details on all estimated cash outfl ows.Put all the gathered details together.71Chapter 6 p66-78 Eng.indd 718/15/11 5:02:24 PM