Cash Flow Financial Planning

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This article will discuss cash flow budgeting and forecasting, with a specific look at why this process can be extremely helpful to CFOs and organizations in the modern business world. 

At Solver, we’re always very hands-on with all various elements of financial planning for a variety of accounting systems and diverse industries.  Two processes that zoom in on the state of your cash money, particularly regarding payments sent out for debtors and payroll, as well as cash payments from customers, are known as cash flow budgeting and forecasting.  More specifically, a cash flow budget or forecast reports an organization’s monthly capital requirement.  Cash flow budgets are different from the more regular operational and transactional planning in that they are a little bit more complicated due to the additional unknown numbers to calculate and evaluate.  In this article, we’ll focus on the cash flow planning task, so you can understand more about the ways that the process can benefit your team’s analytics.

Cash Flow Budgeting and Forecasting

Cash flows in – and flows out – from a variety of sources.  In terms of cash coming in for your organization, think general sales, investments, loan proceeds, and asset sales.  Principal debt service, purchasing assets, and/or direct expenses make up organizational cash flowing out. Cash flow budgets and forecasts are usually used to analyze whether you have enough money to perform your regular operations, in addition to making sure that cash is being allocated productively and effectively.  One of the most important benefits a cash flow budget can offer a company is knowing how much credit you can extend to your customers before experiencing liquidity problems.  Moreover, this particular kind of financial plan has specific elements that look toward  the future by analyzing the past financial performance.

Cash flow budgeting consists of a set of aspects.  More specifically, sales and revenue, development expenses, cost of goods, capital requirements, and operating expenses are all part of a cash flow budgeting picture.  And much like every other strong financial plan, cash flow projections depend on your past performance information.  In terms of a cash flow analysis, you start by compiling your projected sales for the upcoming year, in relation to the percentage of business volume generated on a monthly basis.  Then, you divide each month’s sales by cash and credit sales.  You can record your cash sales in the cash flow report in the same month they are produced.  When it comes to your credit sales, they aren’t credit card sales that are viewed as cash, but rather, they’re invoiced sales with agreed-upon terms.  That said, you’ll review your accounts receivable (AR) records and pinpoint a typical collection period.  You can’t log your credit sales as cash until 5-10 days after that period ends since you are waiting for another bank to receive payment.

To continue learning more about cash flow budgeting and forecasting, read the rest of this article here.

by Solver, Inc.

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