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Simple cash flow forecast methods

Cash flow forecasting is considered such a key element off financial management because of the benefits good forecasting can bring.

Financial planning with cash flow management can reduce the need for financing such as loans and help to predict when a surplus can be invested.

It even helps to avoid catastrophic liquidity disasters which can end a company's business prematurely.

So important is cash flow forecasting that several strategies have been developed to facilitate it. These range from very complex to straight forward options.

The example we will choose is a simple cash flow forecast model. The R&D method is part of the direct method of cash flow forecasting. The acronym R&D stands from Receipts and Disbursements.

A receipt is regarded as any cash transaction that brings positive cash into the companies books. For example transactions such as sales receipts, loans or other financing and the sale of assets would all be regarded as a Receipt.

In contrast any transaction that sees cash leaving the company can be considered a Disbursement. Examples of which include payroll, refunds to customers, interest paid on loan or dividends paid to shareholders.

These lists are not exhaustive and are only an example or some transaction. Each business will have their own subtleties and nuanced business transactions.

The two links below are examples of simple cash flow templates

http://www.businesslink.gov.uk/Finance_files/Cash_Flow_Projection_Worksheet.xls

http://office.microsoft.com/en-ie/templates/quarterly-cash-flow-forecast-TC101877506.aspx

These can be used with the R&D method to give accurate yet simple cash flow forecast results.

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