[MUSIC] Okay, good place to start your financial forecast is with a cash forecast, also called a cash budget or cash flow. Simple cash forecast is informative. And What it does, it's just shows you cash in and cash out. It's pretty straight forward, you think. But there are a few things here that maybe a little bit confusing when it comes to cash in and cash out. Why do we need a cash forecast? Well, it can tell us about whether they will be a shortage or a deficiency of cash. When it will occur, how much cash is needed to cover the shortage. If you're presenting your business plan to raise finance, either to a bank or maybe some investors, they will scan through your cash forecast very, very deeply to ensure that you are fully aware of maybe when you might need an overdraft. This is the whole point of developing the business plan. Most of these banks and investors don't necessarily want to see projected figures that are positive in their millions. They expect you In the near future, maybe to have some cash shortages. What the whole point of the business plan is is you are planning ahead, and you're going to put structures in place to deal with them when they occur. The timing of all the cash receipts, cash in and the cash payments cash out are rarely at the same time. This is where the confusion comes in. Cash forecast can help firm to avoid cash balances which is surplus to it's requirements by enabling management to take steps in advance to invest that surplus cash in some short term investments. That may sound a little odd. I've mentioned about where there's a cash shortage. But sometimes having too much cash for a business. While you may not think it's a bad thing, it can often indicate where there's not a lot of ideas coming from the management. Surely they should be investing that cash, helping the business to grow. Cash deficiencies can be identified in advance. And of course, steps can be then taken to ensure that any bank loan would be available or any overdraft available to meet those temporary cash deficiencies. One way to overcome them is maybe to postpone some sort of large capital expenditure items that you had planned. Cash forecasts are analyzed by smaller time periods than our normal income statement and balance sheet. And normally they're on a monthly basis, but they can be occasionally on a weekly basis. For your cash forecast, in your prediction, in your business plan, it will be for 12 months. But broken up into twelve monthly periods. Some examples of some cash receipts that would go into your cash forecast. Well of course, your cash sales. But mention this before, not all businesses sell the cash. You may be selling on credit. So another example of a cash receipt is when you receive the money from your debtors, from your receivables. That's cash coming on. What about if later on you sell a fixed asset? That's cash coming in as well, potentially issuing some new shares or loans. If you take out a loan, what do the bank give you? They give you cash. If you invite new investors, what do they give you? They give you the cash. So these are the examples of cash coming in to the business. And of course, businesses invest in other businesses or invest in some sort of savings accounts, that bare interest. An interest received is also an example of cash receipt or cash in. Let's look some examples of cash out or cash payments. Payments for the purchase of any raw materials or stock or inventory. Payments of wages, other expenses, rent, rates, accountants Insurance, telephone, gas, and electric. All these day-to-day running costs. What about the payment for some fixed or long-term, non-current assets? These are the big items, the capital items. Maybe a piece of machinery, maybe a motor vehicle, a delivery van. What about the payment of any interest. If you've taken a loan, then you'll have to pay interest on that loan. If you're setting up yourself to the limited company, then you could expect to pay dividends. That's the reward that the shareholders expect. And of course, taxation [MUSIC]
