#MINIMUM CASH BALANCE FORECASTING SERIES#

#MINIMUM CASH BALANCE FORECASTING SERIES#

Then, by using a series of calculations you estimate what your portion of that market potential is to arrive at your possible sales for the year. This information can often be collected using secondary research resources.

To calculate your sales using the top down method of forecasting you first must estimate what the total sales (or market potential) are for your type of business in your market area. This is to expected – forecasting does involve estimates and educated guesses. You may not have the exact or precise information to complete each forecast method. Review each of the methods below and complete the worksheets for each method. The bottom up method is usual if you deliver a product or service that you charge by the hour or unit. The top down method is often best suited to retail operations or other businesses where you can estimate the total market size and amount of money spent on these products and services. Which method you use to forecast sales for your business depends on your type of business and information you have available from your market research. There are two common methods of forecasting your Sales: They can change quickly and make your projections inaccurate. These factors are, for the most part, affected by many things that are out of your control. The difficulty is that your projections will be based on a variety of uncertain factors or “guesstimates”. Alternately, if you under forecast the level of sales, you may make decisions that hinder business development such as renting a location that is less than ideal, or leasing less efficient equipment, etc. If your sales projections are too optimistic, you may find yourself committed to fixed expenses that you cannot afford such as rent, wages, equipment leases, etc. Many business decisions will be based on the level of sales that you forecast. One of the biggest and most important challenges facing new entrepreneurs is forecasting or predicting your level of sales. The cash surplus or deficit is calculated by subtracting cash disbursements from cash receipts.

Therefore, The Enterprising Edge suggests you start with a minimum one year cash flow and for future years if you are confident in your projections.Īll cash received by a business must be recorded. However, the accuracy of the statements diminishes the further you attempt to estimate. Many small businesses prepare cash flow forecasts for the first five years of operation. Your business plan should include a forecast of your cash receipts and cash disbursements for a 12 month period. It is important to note that a Cash Flow Statement is not a substitute for an income statement. It is not written in stone and should be compared with actual results and modified accordingly. As with your household budget, your cash flow is only your best estimate at what the actual results will be. In business it is usually necessary to plan your budget a year in advance. It is essentially a budget for your business finances much like your household budget is for your personal finances. This section deals with a CASH FLOW STATEMENT which plans the cash that comes into the business (cash receipts) and the cash that goes out of the business (cash disbursement).

Minimum cash balance forecasting