N4 Entrepreneurship & Business Management


Steps in cash-flow determination Step 1 Determine all your fixed monthly costs – payments which stay the same every month.


Step 2 Identify payments you can schedule and are not due every month. Predictable payments like licences and certain equipment purchases form part of this.


PAUSE FOR THOUGHT


Your cash-flow requirements are not the same each month. Your sales forecast is a very important indicator and must be as realistic as possible.


Step 3 Your cash inflow section is more difficult. Your sales forecast is used here. Special attention


must be given to seasonal sales patterns and customers’ buying patterns. Special events that might influence your sales must also be taken into consideration.


Step 4 Fill in your purchases (variable payments) in accordance with your projected sales pattern. (Again, note the difference between fixed and variable costs.)


Step 5 Include other payments such as tax. Step 6 Work out your cash flow for the entire first year.


Your cumulative cash-flow will probably show a deterioration before it improves. If not, then you know you have too little working capital and that you will need additional capital.


It is important to note that your cash-flow statement will tell you how much working capital you will need. If you know the figure you have two options. You can either negotiate a loan, (also known as debt capital), or you can make use of private funding. This is known as equity capital.


IMPORTANT


It is important to note that your business might suffer a loss for a certain period of time. A forecast cash flow statement will assist you to overcome such periods through better planning of the use of your available cash. That is why a cash flow statement must be done before an income statement. However, both are vital to your business.


Cash-flow statement explanation


Month


Opening balance Cash sales


Debtors’ income Other income Total cash in Fixed Expenses Advertising* Purchases


Creditors’ payment Other payments Total money out Closing balance


158 D


March


R2500 R2000


C


R4500 R1500 R85


R1000 B


R3000 R5 585 R-1085


April A


-1085 6000 1000 1000 6915 1500 300


3000 500


5300 1615


May


1615 8000 3000


12615 1500 200


4000 1500


7200 5415


June


5415 4000 4000


13415 1500 100


2000 2000


5600 7815


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