CHASE - CREDITCARDS

How To Use Your Statement Of Cash Flows To Make Projections

You can prepare a cash flow projection using the information in your Statement of Cash Flows. This projection will be useful to indicate monthly cash outflows over a specified period. You may want to anticipate when you will need funds for insurance premiums, computer system upgrades, building renovations, or new employees.

Follow these seven steps to create your projections:

1. Estimate Beginning Cash on Hand—Begin with actual cash available at the start of the new month, then add all sales revenues, collections, and other cash income you expect to receive. Use previous months as guidelines to estimate.
2. Calculate Total Cash Available—Sum all "Cash on Hand" items from Step 1.
3. Estimate Cash Paid Out—Carefully list each item you have paid cash for, and then project these same items going forward. Be conservative. Check this estimate each month and make adjustments as needed.
4. Compute Total Cash Paid Out—Total the items under "Cash Paid Out" in Step 3. This amount will indicate each month's cash outlay.
5. Calculate Cash Surplus/Deficit—Subtract "Total Cash Paid Out" from "Total Cash Available" to identify the extra cash or need for cash you anticipate for each month.
6. Estimate Borrowing and Loan Repayment—If you see that there may be a shortfall during certain months, you may need to borrow funds. You may also want to apply some of the extra cash in surplus months to pay off outstanding loans. As always, get advice from your accountant to help you decide what plan is best for your business.
7. Estimate Ending Cash On Hand—This figure begins your projection for the next month.

Now you can continue your projections for one to three years, or whatever is reasonable for your business.

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