Unformatted text preview: business plan cash ﬂow for 12
months, given standard assumptions for sales, costs, expenses, proﬁts, and cash management. The
sample company is proﬁtable and growing. It sells about $6 million annually, produces about eight
percent net proﬁt on sales, and is self supporting. The chart shows a 12-month projection of AMT
cash resources. CHAPTER 14: ABOUT BUSINESS NUMBERS AS THE 14.9 CASH CASE STARTS With the ﬁrst take of the cash case, the business looks good and the cash plan is acceptable.
The light gray (or green if you are viewing this in pdf or online) colored bars represent the checkbook
balance at the end of each month, and the dark bars (red) represent the cash ﬂow, which is how much
the balance changes in a month. The ﬁrst set of bars should never drop below zero, because if your
checkbook balance is less than zero, then you are bouncing checks. The mathematics don’t care, but
the banks do. Cash ﬂow simply tells us how much cash is coming into or ﬂowing out of the business
over a particular period. The cash ﬂow bars, on the other hand, can drop below zero without major
problems, as long as the balance stays above zero. For example, in this case the company’s projected
cash ﬂow is negative in January, May, July, October and November. The light gray bar stays positive,
but the dark one is negative.
In the illustration on the next page, only one assumption has changed: that same company now waits
an extra month, on average, to receive money from customers on invoices presented. The average
wait, which is called “collection days,” goes from 60 days to 90 days. The impact on the company’s
cash position at the end of the year is about half a million dollars, from about $400,000 positive (in
the Cash Case Starts illustration) to more than $150,000 negative in this second chart. Nothing
else changes — no new employees, no change in costs, no additional expenses. By the way,
accountants call money owed by customers “Accounts Receivable.” 14.10 HURDLE: THE BOOK ON BUSINESS PLANNING CHANGING...
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This note was uploaded on 01/26/2014 for the course BUINESS 102 taught by Professor Unknown during the Winter '09 term at University of Phoenix.
- Winter '09