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How to construct a cash flow forecast?

All measures should be taken to make the cash flow forecasts as accurate as possible, hence a strong framework for cash forecasting has to be structured. Following are the steps that should be taken for the construction of a cash flow forecast.

1) Examination of a Cash Flow Forecast: For the prediction to be as accurate as possible, previous term’s financial data should be examined while forecasting the following year’s potential disbursements and receipts.

2) Designing a Cash Flow Work sheet: Helps organizing the cash flows with the help of projected receivables and receipts.

3) Considering Cash Flow Receipts: In case of new operations / programs, the average periodic (monthly) revenues of a similar size operation in that region can be referred to as a benchmark. For running operations, receipts in the same month in a preceded year, suitably adjusted for any present circumstances for that month in the following year.

Cash receipts can be evaluated and predicted by considering tax bill sale dates, tax bill due dates and unexpected transfers payment dates from other entities/ federations.

4) Considering Cash Flow disbursements: Government bodies should only display the cash that a firm expects to pay out each month.

Cash flow forecasts are living entities and hence must regularly be updated as the individual learns more things about the business and their paying customers. Since the firm uses its cash flow forecast to compare each months’ predicted sales figures to its actual performance figures, it may be helpful to have a second column demonstrating the actual performance figures just alongside each planned column in the cash flow worksheet. With the progress in actual performances, the real pattern of cash movement emerges. This may unfold the major discrepancies in the cash flow forecast worksheet.

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