Free Example of Months Cash Flow Forecast Essay

Months Cash Flow Forecast: April to September                      

	April	May	June	July	August	September
Inflows
Bank Loan	5000
Savings	3000
Sales	-	4500	4500	4950	4950	4950
Total Inflows	8000	4500	4500	4950	4950	4950
Outflows
Equipment	4200
Wages	800
Purchases	-	1200	1200	1200	1200	1200
Loan Repayment	-	75	75	75	75	75
Rates	130	130	130	130	130	130
Drawings	1900	1900	1900	1900	2200	2200
Advertisement	500	125	125	125	125	125
Insurance	105	105	105	105	105	105
Rent Premises	350	350	350	350	350	350
Total Out flows	7985	3885	3885	3885	3885	3885
Opening Bank Balance	-	15	630	1245	2310	3375
Net Cash Inflow/(Outflow)	15	615	615	1065	1065	1065
Closing Balance	15	630	1245	2310	3375	4440

Tina’s cash flow position appears to be very strong. The Cash flow forecast drawn above is the best evidence of this statement. How ever, her initial success depends upon the availability of bank loan, which, if not provided, could make her suffer negative cash flows for a lot of months. It seems, as her industry PR is strong and she is reasonably confident that her services would be highly utilized by customers in return for a decent sum of money. The problem that persists is the dependence on bank loan and the equivalency in debtor’s and creditors days. It is not advisable that the cash should be received and paid in the same periods, since it could give rise to liquidity problems. Similarly, complete dependency on bank loan is an area of uncertainty.

Two adjustments that I would suggest are:

1-     Demand cash from customers the moment service is provided. Cleaning services are charged very nominally, and customers can easily pay for them out of their pockets. No credit needs to be given.

2-     Based upon the strength of cash sales, avoid obtaining loan from the bank, which would give rise to unnecessary finance cost.

The readjusted bank balances are shown below.

	April	May	June	July	August	September
Pre-adjusted Balance	15	630	1245	2310	3375	4440
Less: Inflow from bank loan	(5000)
Add: Cash from Sales	4500	4500	4950	4950	4950	4950
Add: Savings from interest		75	75	75	75	75
Less: Cash from credit sales (previously)		(4500)	(4500)	(4950)	(4950)	(4950)
Re Adjusted Balance Opening		(485)	(265)	1505	3890	7340
Readjusted Balance Closing	(485)	(265)	1505	3890	7340	11855

It is easily detectible that the closing balance for September is $7415 greater than it had been previously. Bevan would surely reap higher profits if she follows the above recommendations. Although, two initial months would suffer a negative cash flow, yet they can be survived by obtaining over draft from the bank. However, the after effects of this short sacrifice would bring fruitful results.

The working capital ratio is also known as the Current Ratio. It can be calculated as follows: 

Current Assets

Current Liabilities

Hence, to calculate the working capital ratio, the above formula can be employed 

1500+3000+300

2500+1500

4800

4000

1.2:1 → Working Capital Ratio

The working capital ratio is just perfect, and does not need any particular adjustment. However, it seems as Lorna Lane is overtrading. She has a bank OD, and her cash is very low. However, her debtors and inventory show very high figures. This is due to excessive credit selling, and purchase of inventory. Lorna should cease to allow large credit allowances, and should be careful about buying as much inventory, as is needed.