Cash flow statements and projections express a business’sresults or plans in terms of cash in and out of the business,without adjusting for accrued revenues and expenses. The cash flowstatement doesn’t show whether the business will be profitable, butit does show the cash position of the business at any given pointin time by measuring revenue against outlays.
The cash flow statement should be prepared on a monthly basisduring the first year, on a quarterly basis for the second year,and annually for the third year. The following 17 items are listedin the order they need to appear on your cash flow statement:
- Cash refers to cash on hand in the business.
- Cash sales are income from sales paid for by cash.
- Receivables is income from the collection of money owedto the business resulting from sales.
- Other income is income from investments, interest onloans that have been extended, and the liquidation of anyassets.
- Total income is the sum of total cash, cash sales,receivables and other income.
- Material/merchandise is the raw material used in themanufacture of a product (for manufacturing operations only), thecash outlay for merchandise inventory (for merchandisers such aswholesalers and retailers), or the supplies used in the performanceof a service.
- Direct labor is the labor required to manufacture aproduct (for manufacturing operations only) or to perform aservice.
- Overhead is all fixed and variable expenses required forthe operations of the business.
- Marketing/sales is all salaries, commissions and otherdirect costs associated with the marketing and salesdepartments.
- R&D is labor expenses required to support theresearch and development operations of the business.
- G&A is labor expenses required to support thegeneral and administrative functions of the business.
- Taxes are all taxes, except payroll, paid to theappropriate government institutions.
- Capital represents the capital requirements to obtainany equipment needed to generate income.
- Loan payments are the total of all payments made toreduce any long-term debts.
- Total expenses are the sum of material, direct labor,overhead expenses, marketing, sales, R&D, G&A, taxes,capital and loan payments.
- Cash flow is the difference between total income andtotal expenses. This amount is carried over to the next period asbeginning cash.
- Cumulative cash flow is the difference between currentcash flow and cash flow from the previous period.
