ChApter 7 | YOUR CASH FLOW FORECAST AND CAPITAL SPENDING PLAN | 129
It takes more money to start and run
your business if you offer credit to your
customers than it would if you received
cash for every sale. Here’s how to figure
out how much cash you’ll need. First,
estimate what portion of your total
sales will be for credit. For example, if
you think that about one-third of your
sales will be for credit, that means that
about 33% of your monthly sales dollars
will not be collected in the month in
which the sale is made. Make a note of
that percentage now on the Cash Flow
Forecast form in the heading for line 2.
Look at the Profit and Loss Forecast
you completed in Chapter 6. Multiply
each month’s Sales Revenue dollars (line
1 of the Profit and Loss Forecast) by the
credit percentage that you forecast for
your business. Then enter each of those
monthly figures on line 2 of your Cash
Flow Forecast.exAmple:
Mickey and Michele run a photocopy
and fax service. They estimate that
about 40% of their total sales revenue
will be on credit and the remaining 60%
will be for cash. On line 2 of the Cash
Flow Forecast, they’ll enter these credit
sales: $4,400 for January; $4,400 for
February; and so forth throughout the
forecast.M & M Copy Shop Cash Flow Forecast
Credit Sales Calculation, Six Months ($000s)Jan Feb Mar Apr May Jun
Forecast
sales
revenue $ 11.0 $ 10.9 $ 12.6 $ 13.1 $ 15.6 $ 16.8
% sales on
credit 40% 40% 40% 40% 40% 40%
Forecast
credit
sales $ 4.4 $ 4.4 $ 5.0 $ 5.2 $ 6.2 $ 6.7- Collections of Credit Sales. Skip this item
if you don’t plan to sell merchandise or
services on credit. Your cash receipts are
reduced when a sale is made for credit
instead of cash. On the other hand, your
cash receipts increase when you collect
the money from a credit sale you made
earlier. This Cash Flow Forecast shows
you exactly how much your receipts will
be reduced and increased as a result of
your credit policies. Even though your
customers don’t pay you right away, they
eventually pay you. Your job is to figure
out when they’ll do so. If you grant your
customer your normal 30-day terms,
it usually takes 60 days to get paid.
Here’s why. You make a sale on day
one, then write a statement at the end of
the month and mail it to the customer.
He pays it 30 days after he gets the
statement. Of course, some people pay
sooner and some people pay later. In
a well-run business with good paying
customers that grants 30 days to pay
bills, the average turnaround will be 45
to 60 days.