LESSON 32: Generating your Cash Flow statement, includi Articles

LESSON 32: Generating your Cash Flow statement, including a glimpse at how to engineer cash windfalls; and the final steps to completing your model

 Now that you have a good understanding of what is required for you to build a realistic model that can predict your profit, let’s take a look at modelling your all-important cash. Remember that your aim is to plan your cash as well as your profit. The ultimate source of new cash is profit, but […]

32.1 Begin by entering your starting position

 To begin building a picture of your likely future cash you have to start with where you are now, that is at the beginning of your plan period. In accounting terms that means you take your latest Balance Sheet as your starting point. If you remember the detailed discussion on your accounts and Balance Sheet, […]

32.2 Now let’s turn our attention to cash receipts and payments

 By now your model contains a great deal of information. It is able to generate your sales, your costs, and your profit and it has all the information about your financial starting point. What you need to do next is tell it how to convert that information into cash. Consider these two examples. Suppose in […]

32.3 An example to show how you can use timing delays to generate permanent cash windfalls of thousands of pounds, or even hundreds of thousands of pounds

 First look at the first figure below. This shows a twelve-month planned Profit and Loss Account and the corresponding cash flows. The top part of the figure shows the sales, costs and profit. The business makes £3,000 a month on sales of £20,000. Below the Profit and Loss Account are two cash flows. The only […]

32.4 There’s no mystery to understanding which amounts in your plan will be converted into cash

 The examples above showed, in principle, how payment terms are applied to amounts in your Profit and Loss Account. This process has to be applied throughout your model to all those existing values and new transactions that result in a cash payment or receipt. The exact mechanisms by which you do this will depend upon […]

32.5 Exactly when will the cash be received or paid?

 You now know which items result in cash movements. What you need to do next is to tell the model when those movements will take place. In doing this you will also be telling the model when new transactions of each type will be converted into cash. This should be easy. Let’s start with your […]

32.6 Final steps to complete your model

 Now we come to the tail-end pieces of the jigsaw. Although these are important issues, we have left them to the end because they can be dealt with quickly. We will quickly run through these in outline. Staffing. You will need to tell the model about the number of staff you have, what you pay […]

32.7 That’s it!

 Congratulations. You now have a very good idea of how to put your plan together. Don’t let the significance and magnitude of what you have learnt pass you by. You now know why you need a planning model, what it can be used for, how it is put together, where the data come from, that […]