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fulfilling orders. Sales in the first six months are expected to be $/£/€60,000 based on negotiations already in hand, plus some cash sales that always seem to turn up. The rule of thumb in the industry seems to be that stock is marked up by 100 per cent, so $/£/€30,000 of bought-in goods sell on for $/£/€60,000.
    On the basis of the above assumptions it is possible to make the cash-flow forecast set out in Table 1.4 . It has been simplified and some elements such as VAT and tax have been omitted for ease of understanding.
    TABLE 1.4    High Note six-month cash-flow forecast ( £ /$/ €)
Month
April
May
June
July
Aug
Sept
Total
Receipts
Sales
4,000
5,000
5,000
7,000
12,000
15,000
Owners’ cash
10,000
Bank loan
10,000
Total cash in
24,000
5,000
5,000
7,000
12,000
15,000
48,000
Payments
Purchases
5,500
2,950
4,220
7,416
9,332
9,690
39,108
Rates, electricity, heat, telephone, internet etc
1,000
1,000
1,000
1,000
1,000
1,000
Wages
1,000
1,000
1,000
1,000
1,000
1,000
Advertising
1,550
1,550
1,550
1,550
1,550
1,550
Fixtures/fittings
11,500
Computer etc
1,000
Total cash out
21,550
6,500
7,770
10,966
12,882
13,240
Monthly cash
Surplus/deficit(–)
2,450
(1,500)
(2,770)
(3,966)
(882)
1,760
Cumulative cash balance
2,450
950
(1,820)
(5,786)
(6,668)
(4,908)
    The maths in the table is straightforward; the cash receipts from various sources are totalled, as are the payments. Taking one from the other leaves a cash surplus or deficit for the month in question. The bottom row shows the cumulative position. So, for example, while the business had $/£/€2,450 cash left at the end of April, taking the cash deficit of $/£/€1,500 in May into account, by the end of May only $/£/€950 ($/£/€2,450– $/£/€1,500) cash remains.
    Overtrading
    In the example above, the business looks like having insufficient cash, based on the assumptions made. An outsider, a banker perhaps, would look at the figures in August and see that the faster sales grew the greater the cash-flow deficit became. We know, using our crystal ball, the position will improve from September and that if we can only hang on in there for a few more months we should eliminate our cash deficit and perhaps even have a surplus. Had we made the cash-flow projection at the outset and raised more money, perhaps by way of an overdraft, spent less on fixtures and fittings, or set a more modest sales goal, hence needing less stock and advertising, we would have had a sound business. The figures indicate a business that is trading beyond its financial resources, a condition known as overtrading, anathema to bankers the world over.
    Cash-flow spreadsheet
    You can do a number of ‘what if’ projections to fine-tune cash-flow projections using a spreadsheet: Entrepreneur ( www.entrepreneur.com/formnet/form/483 ) has a spreadsheet you can download.
    Statement of cash flows for the year
    A cash-flow statement summarizes exactly where cash came from and how it was spent during the year. At first glance it seems to draw on a mixture of transactions included in the profit and loss account and balance sheet for the same period end, but this is not the whole story. Because there is a time lag on many cash transactions, for example tax and dividend payments, the statement is a mixture of some previous year and some current year transactions; the remaining current year transactions go into the following year’s cash-flow statement, during which the cash actually changes hands. Similarly, the realization and accrual conventions relating to sales and purchases respectively result in cash transactions having a different timing to when they were entered in the profit and loss account.
    Example
    A company had sales of $/£/€5 million this year and $/£/€4 million last year and these figures appeared in the profit and loss accounts of those years. Debtors at the end of this year were $/£/€1 million and