Edition-34---cash-flow-forecasting.pdf

1 BOOKKEEPERS KNOWLEDGE BASE Edition 34 Cash Flow Forecasting INTRODUCTION Lack of cash flow can be fatal for businesses. The planning of cash flow can be the difference between a business surviving, and going bankrupt. Cash Flow Forecasts are one tool that a business can employ to plan their cash flow. Bookkeepers are in an excellent position to undertake the preparation of Cash Flow Forecasts due to their in-depth understanding of the operational aspects of small business. Not only will you be performing a vital role in ensuring liquidity within the business, but you will also be value adding to your own menu of services you offer your clients. This article will show you how to prepare a Cash Flow Forecast and, in doing so, will cover the following topics: ? The need for constant cash flow ? The importance of cash flow forecasting ? How to prepare a Cash Flow Forecast ? Cash Flow Forecast case study ? Cash flow Tips. THE NEED FOR CASH FLOW Cash is the cornerstone of a business. All businesses need to ensure they have sufficient cash, at a particular time, to pay their bills. Cash is needed constantly in order to discharge a wide range of payment obligations which arise from many sources, including: 1. Tax Office ? Superannuation: Businesses that have employees are required to contribute 9% of each employee’s earnings base to a complying superannuation fund or retirement savings account (RSA). This obligation arises each quarter (every three months). ? GST: GST is collected by business on behalf of the Government. GST collected by businesses must be forwarded to the Tax Office. Depending on your reporting cycle, a business must be able to forward these GST amounts (less any GST credits owing to you) by the due date of your monthly or quarterly activity statement, or your annual GST return. ? Pay-as-you-go (PAYG) Tax Instalments: PAYG Instalments are paid during the year, and ar