Cash Flow Forecasting

Profits and Cash Flow

There is no link between positive results in the profit and loss forecast and cash in the bank. Any business that runs out of cash is insolvent, regardless of profits or positive balance sheet equity.

Figurewizard and Cash Flows

Figurewizard's three cash flow forecasts are all calculated automatically by our system, without the need for any  further intervention by a user. These are:

Monthly budgteted cash flow and bank balance forecast

Operating and net cash flow forecasts

Interactive cash flow and factoring / supply chain finance calculator

All the system needs to produce these forecasts are your projected figures for sales, margin. overheads, sources of finance (e.g. capital; loans; bank overdrafts) and investment activity.

The forecasts can then be refined or updated in ral time with single clicks of a mouse using Figurewizard's unique Universal what-if calculator

Budgeted Cash Flow

In day-to-day practical terms the monthly budgeted cash flow forecast the most important of all. Even a s single month's budgeted cash flow plus undrawn and available financing cash returning a deficit is a signal that your plans for the business will need to be revised.

Cash flow deficits mean putting continuity of supply of goods and services at risk, with the chance of financial penalties for late payment of VAT and taxes making matters worse. Such events also have a habit of creating the wrong kind of domino effect on successive months’ budgeted cash flows.

Operating Cash Flow

This measures cash the business generates exclusively from its trading over the course of its financial year. Interest charges, investment income, taxes and expenses that are not directly linked to core trading are omitted.

Operating cash flow deficits will often arise when a business is expanding and otherwise healthy. Deficits should not represent a problem as long as liquidity (working capital) is adequate for meeting liabilities. That will call for efficient management of current assets, especially accounts receivable and stock / inventory.

Net Cash Flow

Adding non-operating income and expenditure such as investment, interest and taxes to operating cash flow returns net cash flow.

That shows the change in overall net cash flow from the previous year, which is matched by the changes in external finance such as loans, overdrafts (or credit balances) and other asset financing to support it.

Servicing External Financing Debt

Figurewizard’s monthly bank balance forecast is key. Cash + overdraft deficits must be eliminated – The What-If calculator is ideal to plan for that.

However while bank balance forecasts indicate the availability of cash from all sources (including cash from financing) to meet month-by-month liabilities, it is not a true indicator of the ability of the business to service its debts.

That is the job of operating cash flow, representing as it does cash that has generated by the business by its core trading operations and nothing else.

For example while increases in current liabilities will add to operating cash flow, increases in financing such as from bank loans. overdrafts, asset financing and factoring or invoice discounting do not.

For more on these, follow the links below.