Preparing a

Cashflow Forecast

CH.QS HASITHA GUNASEKARA

B.SC (HONS.) QS, M.SC. PM, DIP. ARBITRATION,
AIQS. SL, MAIQS, ACIARB, MCIOB
Why Should You Prepare a
Cash Flow Forecast?

A cash flow forecast shows the critical rate

of cash coming in and cash going out during
a certain month.

Preparing a monthly cash flow forecast provides you

with the opportunity to show monetory figures, representing
revenues and expenses, in the month the PROJECT expects
to collect and spend the cash.
 Why Should You Prepare a
Cash Flow Forecast?
YOU WILL HAVE ENOUGH TIME TO DEVISE REMEDIES FOR ANTICIPATED
TEMPORARY CASH SHORTFALLS AND AMPLE OPPORTUNITY TO
ARRANGE SHORT TERM INVESTMENTS FOR THE PROJECT' TEMPORARY
CASH FLOW SURPLUSES.
THE COMPLETED CASH FLOW FORECAST WILL CLEARLY SHOW WHAT
ADDITIONAL WORKING CAPITAL, IF ANY, THE PROJECT MAY NEED,
AND WILL OFFER LOOK AHEAD THAT THERE WILL BE SUFFICIENT CASH
ON HAND TO MAKE THE INTEREST PAYMENTS TO SUPPORT A
Why Should You Prepare a
Cash Flow Forecast?
COMPUTER SPREADSHEET PROGRAMS SUCH AS MICROSOFT EXCEL,
MS PROJECT CAN BE VERY USEFUL FOR CASH FLOW WORKSHEET
DEVELOPMENT.
RELIABLE CASH FLOW PROJECTIONS CAN BRING A SENSE OF
ORDER AND WELL-BEING TO YOUR PROJECT AND MORE CALM
TO YOUR LIFE.
 Importance of
Cash
WHEN PLANNING THE SHORT- OR LONG-TERM
FUNDING REQUIREMENTS OF A PROJECT, IT IS
MORE IMPORTANT TO FORECAST THE LIKELY
CASH REQUIREMENTS THAN TO PROJECT
PROFITABILITY ETC. WHILST PROFIT, THE
DIFFERENCE BETWEEN INCOME AND COSTS
WITHIN A SPECIFIED PERIOD, IS A VITAL
INDICATOR OF THE PERFORMANCE OF A
PROJECT, THE GENERATION OF A PROFIT DOES
NOT NECESSARILY GUARANTEE ITS
DEVELOPMENT, OR EVEN THE SURVIVAL. BEAR IN
MIND THAT MORE PROJECT FAIL FOR LACK OF
CASH THAN FOR WANT OF PROFIT.
 Cash vs Profit
INCOME AND COSTS AND, THEREFORE, PROFITS DO NOT
NECESSARILY COINCIDE WITH THEIR ASSOCIATED CASH
INFLOWS AND OUTFLOWS. AT THE SAME TIME, PAYMENTS
MUST BE MADE TO SUPPLIERS, STAFF ETC., CASH MUST BE
INVESTED IN REBUILDING DEPLETED STOCKS, NEW EQUIPMENT
MAY HAVE TO BE PURCHASED ETC.
THE NET RESULT IS THAT CASH RECEIPTS OFTEN LAG CASH
PAYMENTS AND, WHILST PROFITS MAY BE REPORTED, THE
PROJECT MAY EXPERIENCE A SHORT-TERM CASH SHORTFALL.
FOR THIS REASON IT IS ESSENTIAL TO FORECAST CASHFLOWS
AS WELL AS PROJECT LIKELY PROFITS.
How Do You Get
Started?
Step One - Income
 Step One: Consider Your
Cashflow Revenues
FIND A REALISTIC BASIS FOR ESTIMATING YOUR
INCOME EACH MONTH.
FOR NEW OPERATIONS, BASICALLY INCOME WILL
GENERATE FROM THE INTERIM PAYMENT APPLICATION
SUBMITTED IN EACH MONTH + ADVANCE PAYMENTS
Step Two -
Disbursements
 Step Two: Consider Your
Cash Flow Disbursements
THERE WILL BE FOLLOWING EXPENDITURE NEED TO BE CONSIDERED;
CONSTRUCTION COST
RETENTION
ADVANCE RECOVERY
ANY OTHER PROCUREMENT OF MATERIAL
ADVANCE PAYMENTS MADE TO THE SUB CONTRACTORS/ SUPPLIERS
Step Three -
Reconciliation
 Step Three: Reconciliation
Of The Cash Revenues To
Cash Disbursements
THE RECONCILIATION SECTION OF THE CASHFLOW WORKSHEET
BEGINS BY BALANCING THE INCOME WITH THE EXPENDITURE.
THE WORK PROGRAM SHOULD BE MATCH WITH THE CASHFLOW
DISBURSEMENTS TO AVOID ANY SHORTAGES
RESOURCE UTILIZATION HAS TO BE SMOOTH AND WELL PALNNED
 Designing A Cash Flow
Worksheet
THERE ARE A VARIETY OF WAYS A
CASH FLOW FORECAST CAN BE
STRUCTURED. TO GAIN THE
OPTIMUM BENEFIT, IT IS
RECOMMENDED THAT IT BE
STRUCTURED TO SHOW ONLY
INCOME AND PROJECT
EXPENDITURE
Calculating
Cashflows
 Calculating
Cashflows
NORMALLY, THE MAIN SOURCES OF
CASH INFLOWS TO A PROJECT ARE
RECEIPTS FROM INCOME, INCREASES IN
BANK LOANS, ETC
Calculating Cashflows
NET CASHFLOW IS THE DIFFERENCE
BETWEEN THE INFLOWS AND OUTFLOWS
WITHIN A GIVEN PERIOD. A PROJECTED
CUMULATIVE POSITIVE NET CASHFLOW
OVER SEVERAL PERIODS HIGHLIGHTS
THE CAPACITY OF A PROJECT TO
GENERATE SURPLUS CASH AND,
CONVERSELY, A CUMULATIVE
NEGATIVE CASHFLOW INDICATES THE
AMOUNT OF ADDITIONAL CASH
REQUIRED TO SUSTAIN THE PROJECT.
Planning Pitfalls
Planning Pitfalls
When preparing cashflow projections, be aware of the
dangers of:
Overstating INCOME forecasts
Underestimating costs and delays likely to be
encountered
Seeking spurious accuracy whilst failing to
recognise matters of strategic importance
Planning Pitfalls
THESE PROBLEMS CAN ARISE AS THE RESULT OF A LACK OF
FORESIGHT OR KNOWLEDGE, OR BECAUSE OF EXCESSIVE
OPTIMISM. THEY CAN LEAD TO UNDERESTIMATION OF THE
CASH AND OTHER RESOURCES REQUIRED TO SUSTAIN OR
DEVELOP A PROJECT WITH POTENTIALLY DISASTROUS
CONSEQUENCES.
THERE IS OFTEN MERIT IN COMPILING "WORST" CASE
PROJECTIONS TO COMPLEMENT "MOST LIKELY" OR "BEST"
FORECASTS AND TO ACCEPT THAT THE "WORST" CASE MIGHT
OCCUR AND TO PLAN ACCORDINGLY.
Making the Best Use Of Your
Cashflow
 Making the Best Use Of Your
Cash Flow
CASH FLOW PLANS ARE LIVING ENTITIES AND MUST CONSTANTLY BE
MODIFIED AS YOU LEARN NEW THINGS ABOUT YOUR PROJECT
AND YOUR PAYING CUSTOMERS. SINCE YOU WILL USE THIS CASH
FLOW FORECAST TO REGULARLY COMPARE EACH MONTH'S
PROJECTED FIGURES WITH EACH MONTH'S ACTUAL
PERFORMANCE FIGURES, IT WILL BE USEFUL TO HAVE A SECOND
COLUMN FOR THE ACTUAL PERFORMANCE FIGURES RIGHT
ALONGSIDE EACH OF THE PLANNED COLUMNS IN THE CASH
FLOW WORKSHEET. AS THE TRUE STRENGTHS AND WEAKNESSES
OF YOUR PROJECT UNFOLD BEFORE YOUR EYES, ACTUAL
PATTERNS OF CASH MOVEMENT EMERGE. LOOK FOR
SIGNIFICANT DISCREPANCIES BETWEEN THE PLANNED" AND
ACTUAL FIGURES.
Critically Examine
Results
Critically Examine
Results
ONCE THE CASHFLOW
PROJECTIONS HAVE BEEN
PREPARED, THEY SHOULD BE
CRITICALLY EXAMINED AND
USED AS A MANAGEMENT
TOOL TO CONTROL AND
IMPROVE THE PROJECT'S
EXPECTED CASH POSITION.