Cash Flow Statement
Cash Flow Statement Projections
The next task at hand will be to tackle the Cash Flow Statement projections. Often overlooked, the Cash Flow Statement is critical for projecting out working capital needs to the Owner(s)/Management. Typically, most CPAs and other financial professionals will use the indirect method or Statement of Changes. Some CFOs prefer to use the direct method (gross cash receipts vs change in accounts receivable) which looks similar to the Income Statement. This format is easier for the entrepreneur to understand due the similar appearance and format between the Cash Flow Statement and the Income Statement. Also, the entrepreneur can relate the Gross Cash Receipts, which is on a monthly basis, to the weekly Cash Receipts which in turn can be related to the Daily Cash report. More sophisticated users, however, such as venture capitalists, may prefer to see the indirect method.
Formulas for individual cells will need to be created and referenced to the appropriate cells back in the Assumptions Worksheet.
It may be easier to look at the Projected Cash Flow Statement as consisting of two halves. The first half deals with the actual cash flow from operations and closely mirrors the line items seen on the Projected Income Statement. The second half of the Projected Income Statement consists of two sections: 1) "Add: Sources of Cash" and 2) "Less: Uses of Cash".
It is this second half portion of the I/S that you will be working with to help you balance out the B/S. This portion is basically a "worksheet" that you use in balancing out the B/S. It should not be a part of any printouts. With the exception of Cash, A/R, Inventory, and A/P, the rest of the B/S line items are all adjusted in the “Less: Uses of Cash” section. Cash, A/R, Inventory, and A/P are adjusted above in the CFS portion. It should also be noted that we assume that SG&A expenses are paid out in the same period as they are incurred. This assumption makes it easier to see the impact of cash flows on working capital.