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CHAPTER 13 - CASH FLOW MODELS

Having a model of how much cash it is going to take and when that cash must be available, is just like having a road map. With it you can go far, without it you run out of gas. Detailed first year cash flow projections, followed by a summary overview of how the next four years will flow, are a must.

1. Cash on hand (beginning of month)
    Cash on hand same as (7), Cash position, previous month.

2. Cash receipts:
    (a) Cash sales
         All cash sales. Omit credit sales unless cash is actually received.
    (b) Collections from credit accounts
         Amount to be expected from all accounts.
    (c) Loan or other cash injection
         Indicate here all cash injections not shown in 2(a) or 2(b) above.

3. Total cash receipts (2a+2b+2c=3)

4. Total cash available (before cash out)(1+3)

5. Cash paid out:
    (a) Purchases (merchandise)
         Merchandise for resale or for use in product (paid for in current month).
    (b) Gross wages (excluding withdrawals)
         Base pay plus overtime.
    (c) Payroll expenses (taxes, etc.)
         Include paid vacations, paid sick leave, health insurance, unemployment
         insurance, social security (employer portion). Might be 10 to 45% of 5(b).
    (d) Outside services
    (e) Supplies (office and operating)
         Items purchased for use in the business (not for resale)
    (f) Repairs and maintenance
        Include periodic large expenditures such as painting or decorating.
    (g) Advertising
        This amount should be adequate to maintain sales volume.
    (h) Car, delivery and travel
    (i) Accounting and legal
    (j) Rent
        Real estate only (See 5(p) for other rentals).
    (k) Telephone
    (l) Utilities
    (m) Insurance
         Coverage on business property and products (fire, liability); also
         worker's compensation, etc. Exclude executive life (include in 5(w)).
    (n) Taxes (real estate, etc.)
         Plus inventory tax, sales tax, excise tax, if applicable.
    (o) Interest
         Interest on loans as it is injected (See 2(c)).
    (p) Other expenses (specify each)
         Unexpected expenditures include here. Equipment expenses
         during the month should be included here (non-capital equipment).
         When equipment is rented or leased, record payments here.
    (q) Miscellaneous (unspecified)
         Small expenditures for which separate accounts would be practical.
    (r) Subtotal
        This subtotal indicates cash out for operating costs.
    (s) Loan principal payment
         Include payment on all loans, including vehicle and equipment
         purchases on time payment.
    (t) Capital purchases (specify)
        Non-expensed (depreciable) expenditures such as equipment, equipment lease, equity, equity placement, building
        purchases on time payment, leasehold improvements, etc.
    (u) Other start-up costs
         Expenses incurred prior to first month projection and paid for after
         start-up.
    (v) Reserve and/or escrow (specify)
        Example: insurance, tax or equipment escrow to reduce impact of
        large periodic payments
    (w) Owner's withdrawals
         Should include payment for such things as owner's income tax,
         social security, health insurance, life insurance premiums, etc.

6. Total cash paid out (5a through 5w)

7. Cash position (end on month) (4 minus 6)
    Enter this amount in (1) Cash on hand following month

Essential operating data (non-cash flow information)

This is basic information necessary for proper planning and for proper cash flow projection. Also with this data, the cash flow can be evolved and shown in the above form.

A. Sales volume (dollars)
This is a very important figure and should be estimated carefully, taking into account size of facility and employee output as well as realistic anticipated sales (actual sales, not orders received).

B. Accounts receivable (end of month)
Previous unpaid credit sales plus current month's credit sales, less amounts received current month (deduct "C" below).

C. Bad debt (end on month)
Bad debts should be subtracted from (B) in the month anticipated.

D. Inventory on hand (end on month)
Last month's inventory plus merchandise received and/or manufactured current month minus account sold current month.

E. Accounts payable (end of month)
Previous month's payable plus current month's payable minus amount paid during month.

F. Depreciation
Established by your accountant, or value of all your equipment divided by useful life (in months) as allowed by Internal Revenue Service.

Monthly Cash Flow Projection Worksheet

1. Cash on hand (beginning month)

2. Cash Receipts
(a) Cash sales
(b) Collections from credit accounts
(c) Loan or other cash injections (specify)

3. Total cash receipts

4. Total cash available (before cash out)(1+2+3)

5. Cash paid out
   (a) Purchases (merchandise)
   (b) Gross wages (excludes withdrawals)
   (c) Payroll expenses (taxes, etc.)
   (d) Outside services
   (e) Supplies (office and operating)
   (f) Repairs and maintenance
   (g) Advertising
   (h) Car, delivery and travel
   (i) Accounting and legal
   (j) Rent
   (k) Telephone
   (l) Utilities
   (m) Insurance
   (n) Taxes (real estate, etc.)
   (o) Interest
   (p) Other expenses (specify each)
   (q) Miscellaneous (unspecified)
   (r) Subtotal
   (s) Loan principal payment
   (t) Capital purchases (specify)
   (u) Other start-up costs
   (v) Reserve and/or escrow (specify)
   (w) Owner's withdrawal

6. Total cash paid out (5a through 5w)

7. Cash position (end of month)(4 minus 6)

Essential operating data (non-cash flow information)

A. Sales volume (dollars)

B. Accounts receivable (end of month)

C. Bad debt (end of month)

D. Inventory on hand (end of month)

E. Accounts payable (end of month)

F. Depreciation (in months)

Workbook Main Menu I To Chapter 14

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