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Example of cash flow forecast methods

Cash flow forecasting allows businesses and companies to predict their future liquidity. By looking at incoming and outgoing cash it allows users to predict future surplus or deficits in cash.

This can allow businesses to manage not only cash flow but security and financing.

This is why cash flow forecasting is widely regarded as one of the most important parts of financing management and planning.

There are a variety of different methods used in cash flow forecasts. These can be subdivided into two main methods.

Direct and Indirect methods. Direct method, also referred to as the R&D method is the most popular method.

This R&D method divides all cash transactions into Receipts and Disbursements (R&D).

Receipts include but are not limited to cash sales, cheques and payments from accounts receivable, loans or financing and the sales of assets.

Disbursements include wages, refunds, accounts payable transactions, repayment of loans or other financing.

These lists are not intended to be extensive but just an example to highlight the kinds of transactions that may be included. Obviously every business will have its own individual types of transactions.

With the links below you will find examples of the different kinds of formats that can be used. We advise you to find one that you (and your accountant if you have one) are comfortable with.

http://www.aib.ie/business/business-banking/information/cash-flow-forecast-template

http://office.microsoft.com/en-us/templates/small-business-cash-flow-projection-TC001113236.aspx

Each example of cash flow forecast templates uses the R&D method.

The indirect methods discussed before take into account such things as adjusted net income (ANI) or the pro-forma balance sheet (PBS).

These other methods are more complex and allow for a long term more strategic forecasting. We would recommend the R&D method for all home and small business needs.

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