When it comes to the financial business tools, a cash flow statement is one of the most vital tools for every business. The cash flow forecast predicts the cash required to run your business or to take it to the next level. The budget of the company completely depends upon the cash required or cash in hand. The cash flow also determines the cash you will about to spend in future for your business.
Bifurcation of the tasks into the various steps is the easiest way to prepare the cash flow statement. At the end, you will get all the information. The five major steps to prepare a cash flow statement are as follows:
Sales prediction and forecasting
For the existing businesses, the previous year statements of sales is the determining factor and you can decide what amendments or reforms you require based upon your previous statements.
For new businesses, estimation is the only way through which you can prepare your cash flow statements. Through prediction, you can determine the cash required in future, keeping a percentage aside as a backup, you can create a sale plan for future.
Sales figures are dynamic; they keep on changing due to various factors, such as type of customers and their returns to you.
Prepare detailed and estimated cash flows
Cash inflows are completely dependent upon the nature of businesses. For example;
- Further investment
- Payback of loans after sale of asset
- Grants from government
- Various kind of fees such as royalties or licensing fees
Work on details for all cash inflows and outflows
Working out with the cost involved in detail will help you to calculate your cash outflows. Through this, you can work with the sales numbers later on. For example, you need to buy a new set a chairs which costs 1000$ for your office, by predicting your need in advance, you can pull up your sales with the help of team and give them a specific target so that you can achieve it and buy chairs in future.
Other kind of outflows
There are other ways through which cash leaves from your treasury, some examples are as follows:
- Loan establishment fees
- Purchasing new assets
- Repayment of business loan
- Further investments and business plan
Gather all the details to prepare your cash flow statement
In the beginning, you have decided the period and forecast coverage. Cash flows are completely about timings and flowing of cash, you will need a bank balance by adding the cash inflows and deducting the cash outflows month to month. The final number at the end of the month is referred as the closing cash balance and this number becomes the balance for the next month.
Review your estimates to actual
Once you are done with your cash flow statement, check the estimated and actual cash flows for the period. Cash flow is the major and essential part of your business and when your actual and estimated cash flow is done, you will get the difference between the your prediction and your actual spend. The more accurate you are in prediction, the more you will be able to manage your financial statements and spend.