Managing Your Money: Accounting, Budgeting & Cash Flow
As the owner of your business, you need accurate financial data to make smart decisions, measure your progress and file your taxes. A well-organized bookkeeping and recordkeeping system will ensure that your financial information is clear, complete and available whenever you need it.
Recordkeeping Checklist Worksheet
Use the worksheet on the following page to start thinking about this very important part of your business. Follow the four steps below to fill out this chart.
Review this checklist often to make sure it includes all your recordkeeping tasks, and also to confirm that the person assigned to each task is keeping up with it.
Step 1	Identify business activities that require recordkeeping.
Several standard categories are listed on the following page, including accounts receivable, cash, accounts payable and payroll. You may wish to add other activities.
Step 2	List the recordkeeping tasks for each activity.
Be as specific as you can. Some standard tasks are shown under the Financial Activities and Other Recordkeeping Tasks column to get you started.
Step 3	Determine how often each task must be done.
Should it be performed daily, weekly, monthly or quarterly? Place a checkmark in the appropriate box. You can also note a specific date or time requirement in the box, such as “April 15.”
Step 4	Decide who should perform the task.
Decide who has the right skills for the task, and write that person’s name in the appropriate space. Note that many entrepreneurs outsource this work to a professional bookkeeper, accountant or payroll company.
Recordkeeping Checklist Worksheet–continued
Some financial chores have deadlines you do not want to miss. For example, depositing payroll taxes late can cost your business a huge amount in penalties. Skipping a payroll tax deposit entirely can put you out of business. Remember: Even if you assign recordkeeping tasks to someone else, you’re still responsible for making sure that these tasks get done correctly and on time.
Financial Activities and Other Recordkeeping Tasks | Frequency |  |  |  | Person Responsible
| Daily | Weekly | Monthly | Quarterly
Accounts Receivable
Send invoices or statements
Post charges and payments
Prepare an aging schedule
Collect past-due accounts
Other:
Cash
Deposit sales receipts
Reconcile bank account(s)
Balance petty cash
Other:
Other:
Accounts Payable
Maintain ”Invoice Due” file
Pay invoices
Review missed cash discounts
Follow up on invoice problems
Other:
Payroll
Prepare paychecks
Deposit federal payroll taxes
Prepare state payroll reports
Prepare federal payroll reports
Other:
Other:
Now that you know about some of the bookkeeping and recordkeeping tasks you need to perform, try to answer the following questions.
1.	Who will be primarily responsible for bookkeeping and recordkeeping activities at your business? Why did you choose this person?
2.	Will you use outside professional services to help with bookkeeping? If so, who will you use, and what will they do? What is their fee? How often will they work with you?
3.	Will your books and records be kept on the cash basis or the accrual basis? Why did you choose that accounting method?
4.	What information will be most helpful to you in managing the financial affairs of your business (e.g., cash flows, gross revenues, quarterly profits)? How often will you review it?
Internal Controls Worksheet
Internal controls are policies and procedures that safeguard your business assets. They include:
Authorization. Make sure the appropriate person authorizes purchases and sales. You must clearly state to vendors, banks and other business partners what authority you have given to which employees.
Physical controls. Blank checks and other documents should be prenumbered and locked away when not in use. Cash should be kept under lock and key and deposited daily.
Tickler systems help you keep track of current bills and orders. This could be a red folder for current orders, or a computer program that produces a daily report of due bills.
Monitoring and review. You should regularly assess whether your policies are effective. Are they being used correctly? If so, do they accomplish everything they’re supposed to?
Follow these steps to complete the worksheet on the next page.
Step 1	Identify business activities that require internal controls.
Step 2	Identify responsibility for maintaining internal controls.
Step 3	Briefly describe the controls in place, taking care to specify who, what, where, when, why, and how.
Internal Controls Worksheet
Activity | Person responsible | Controls in place | Controls needed | Cost
Banking
Accounting
Purchasing/inventory
Sales
Payroll
Recordkeeping
Other:
Sales Forecast Worksheet
Forecasting sales is critical to your business. If you don’t know how much you plan to sell in the next 12 months, you can’t plan how much to spend, nor can you project a profit picture.
Be realistic in your projections. If you have an existing business, look at last year’s sales data. Reviewing your research on your industry, products, customers, competitors and seasonality can help you identify trends and plans for growth over the next three years.
You can easily transfer this worksheet to a spreadsheet and let your computer do the calculations.
Step 1	Using what you learned through research (and historic sales information, if you have it), estimate unit sales for the next 12 months.
If you’re selling products, forecast the number of units and when they will sell. If you’re selling a service, your “unit” might be one hour, one day or one job.
Step 2	Insert the price per unit for each product.
Price per unit is your selling price. It could be a retail price if you’re selling directly to customers or a wholesale price if you’re selling to wholesalers. If you plan to adjust your prices over the course of the year, note this change in the appropriate months.
Step 3	Calculate monthly sales.
Multiply Units Sold by Price Per Unit to get Total Sales for each month. Then, add each column across to get totals for the year.
Note: Repeat steps 1 through 3 for each product.
Step 4	Calculate your monthly sales total. Add Total Sales down each month column and insert this figure in the Total Product Sales space at the bottom of each column.
Step 5	Calculate total yearly sales for each category. Add Total Product Sales across each row, and insert this figure in the column marked Yearly Total.
Step 6	Check your math. The sum of all the figures in the Yearly Total column should match the sum of all the monthly totals along the bottom of the worksheet.
The figure in the lower right corner is the projected total yearly income from all products sold. Compare this number to the Annual Sales Volume Projection you completed when researching your market potential in Session 4. If the two numbers are completely different, reevaluate your work.
Sales Forecast Worksheet
Month | 1 Jan | 2 Feb | 3 Mar | 4 Apr | 5 May | 6 Jun | 7 Jul | 8 Aug | 9 Sep | 10 Oct | 11 Nov | 12 Dec | Yearly Total
Product 1
Units Sold
Price Per Unit
Total Sales
Product 2
Units Sold
Price Per Unit
Total Sales
Total Product Sales
Assumptions for the Sales Forecast Worksheet
Units sold each month is based on:
Seasonal fluctuation of units sold is based on:
Price per unit is based on:
Of the sales reported above, _____% will be cash sales and _____% will be charge sales.
Payment terms:
Growth plans and actions:
Additional comments:
Cost of Projected Product Units Sold Worksheet
In the previous section, you projected monthly sales for each product. In this section, you will calculate the direct cost of these projected sales. For example, you might sell a product for a retail price of $50, but your cost for this product might be $30 (including freight).
We are using the term “Cost of Projected Product Units Sold” so that you will associate the direct costs of the product units with the units you forecasted selling on the Sales Forecast Worksheet.
This is not to be confused with the accounting term “Cost of Goods Sold,” which, for a specific accounting period, refers to beginning inventory plus inventory purchases minus ending inventory. Again, the purpose here is to project the monthly and annual direct cost of each product listed on the Sales Forecast Worksheet.
Note: Service businesses do not need to complete this section and can go to the next section.
To complete this section, you will need to use data from your Sales Forecast Worksheet.
Step 1	Fill in the Units Sold for your product categories, based on your Sales Forecast Worksheet.
Step 2	Fill in your Cost per Unit for each category. You are making some assumptions here. What are they and how much risk is involved? (Use the worksheet to list your assumptions.)
Step 3	Calculate the Total Cost for each of the categories. Multiply Units Sold by Cost per Unit.
Step 4	Calculate the Total Product Cost for each month. Add down the columns.
Step 5	Calculate the Yearly Total for each product. Add across the row.
Step 6	Check for accuracy. The 12 monthly totals added across for Total Product Cost should match the Yearly Total column added down.
If you have an existing business, you may be able to use your historic information to determine the relationship between last year’s sales and cost of product units sold by looking at the Cost of Goods Sold entry on your income statement. Again, this represents your beginning inventory plus your purchases during the year (including related costs like freight), minus your ending inventory. The result is the cost of the inventory you actually sold.
What percentage is Cost of Goods Sold relative to Annual Sales shown on that same income statement? Compare that figure to the Cost of Projected Product Units Sold relative to your projected sales volume from this session, and see how closely they match.
Using the cost of goods sold percentage as a planning tool for purchases relating to sales can work well if you have a large number of products in your product group (where it would be very tedious to project the individual sales and cost projections for each item), and if you have accurate historic information (or reliable industry information) that produces an accurate cost of goods sold percentage.
Cost of Projected Product Units Sold Worksheet
| 1 Jan | 2 Feb | 3 Mar | 4 Apr | 5 May | 6 Jun | 7 Jul | 8 Aug | 9 Sep | 10 Oct | 11 Nov | 12 Dec | Yearly Total
Product 1
Units Sold
Cost per Unit
Total Cost
Product 2
Units Sold
Cost per Unit
Total Cost
Product 3
Units Sold
Cost per Unit
Total Cost
Product 4
Units Sold
Cost per Unit
Total Cost
Total Product Cost
Assumptions for Cost of Projected Product Units Sold
Step 7	Calculate the relationship between total Cost of Projected Product Units Sold and Total Product Sales (from the Sales Forecast Worksheet).
Total Product Cost (Yearly Total ) ÷ Total Product Sales (Yearly Total) = Total Projected Cost of Product Units Sold: ___________%.
How does this compare to your historic Cost of Goods Sold percentage?
How does this compare to your industry information about the average Cost of Goods Sold percentage?
Fixed Assets Worksheets
This section will help you plan purchases of fixed assets, which are assets with useful lives of more than one year (e.g., land, buildings, machines, equipment, office furniture and computers).
This section also will help you calculate the monthly depreciation for each fixed asset. “Depreciation” is defined as the original cost of the equipment divided by the useful life (in months) of the equipment. For example, a truck might cost $6,000 and have a useful life of five years (60 months). The truck’s monthly depreciation would be $100 per month ($6,000 divided by 60 months). This example is called straight-line depreciation. Consult your accountant to determine the depreciation schedule most applicable to your business. Land is not depreciated, so deduct its value and only depreciate buildings.
Step 1	List each fixed asset to be purchased during the next year.
Step 2	Fill in the cost of each fixed asset (new or used) and the estimated acquisition date.
Be sure you have analyzed whether you should purchase new or used, or lease.
Step 3	Estimate the useful life (in months) of each fixed asset to be purchased.
The IRS has some guidelines on allowable useful life by asset category. Seek that information before estimating useful life, or consult your accountant.
Step 4	Fill in the monthly depreciation for each fixed asset to be purchased (cost divided by useful life in months).
Step 5	Calculate Annual Depreciation for each fixed asset. Multiply Monthly Depreciation by the number of months from the date of acquisition in the (fiscal/accounting) year.
There are IRS regulations concerning partial-month depreciation for the month in which an asset is acquired. However, this calculation will give you a close estimate.
Step 6	Calculate the Total Cost for fixed assets to be purchased, as well as the Total Monthly and Total Annual Fixed Assets Depreciation.
Step 7	On the Fixed Assets Summary Worksheet, total New and Existing Fixed Assets. First, fill in the total cost, and the monthly and annual depreciation, for existing fixed assets. Next, fill in the total cost, and the monthly and annual depreciation, for new assets to be purchased. Now, you have the total annual depreciation expense, which you will use in later worksheets.
If you are an existing business or are transferring assets into a business, use last year’s accounting information for existing fixed assets. Again, consult your accountant for help.
Step 8	Calculate the totals for new and existing fixed assets.
Fixed Assets Worksheet
List of Fixed Assets | New or Used | Cost | Acquisition Date | Useful Life (in months) | Monthly Depreciation | Annual Depreciation
Total Cost |  | $ | Total  Fixed Assets |  | $ | $
Fixed Assets Summary Worksheet
Total New Acquisitions and Existing Fixed Assets | Cost | Monthly Depreciation | Annual Depreciation
New Fixed Assets (from worksheet above)
Existing Fixed Assets (from accountant or current records)
Total  Fixed Assets | $ | $ | $
Growth or Startup Expenses Worksheet
Growth expenses are directly related to growing or expanding your business. They might include building a new space, opening a second location or buying new equipment. Startup expenses are the various expenses it takes to launch a new business component. The majority of these expenses will be one-time expenditures. Examples appear on the next page.
For new businesses, the purpose of isolating startup expenses is to prepare for higher costs in the early months of the business, and to understand the total costs required to get the business started. For existing businesses, the purpose of isolating growth expenses is to calculate the cost of launching your growth project separately from your existing business expenses. You can then include these costs in your cash flow projection to see if your business can fund its own growth or will require new funding.
Step 1	If you are starting a business, enter Cash Available Now for starting your business. If you are an existing business, Cash Available Now is the current cash balance in your business.
Step 2	Review the expenses listed on the next page. You will probably use most of the expense items on this list for your growth or startup project. You may also have some expenses not listed. If so, write them under Other Expenses.
Step 3	Estimate your cost for each expense. Try to be as accurate as possible. If necessary, contact the relevant vendors and service providers to get quotes and bids.
Step 4	Calculate the total for your expenses.
Step 5	Calculate Beginning Cash Balance or Additional Cash Required by subtracting Total Growth or Startup Expenses from Cash Available Now (A - B ). This will be the starting amount for your Cash Flow Projection Worksheet.
Step 6	Document your assumptions.
For each item of expense, explain how you arrived at the estimated costs. Use the lines below the worksheet to write your assumptions about the corresponding expense item.
Note: Some of these expense items show up on other worksheets as ongoing costs to your business. But on this worksheet, we are isolating one-time expenses relating specifically to growth or startup.
Growth or Startup Expenses Worksheet
|  | Cost
| Cash Available Now (A)
1. | Purchase fixed assets (land, equipment, buildings, vehicles)  (See Fixed Assets Worksheets)
2. | Remodeling costs (buildings, fixtures, signs, paint, cleaning)
3. | Installation fees (equipment, phones, computer network)
4. | Deposits (utilities, lease, phone, leased equipment)
5. | Fees, licenses, certifications
6. | Special one-time legal fees (specifically for growth or startup)
7. | Special accounting and other professional fees
8. | Pre-opening labor expense
9. | Pre-opening training costs
10. | Beginning inventory of merchandise or materials
11. | Supplies (letterhead, forms, price tags)
12. | Promotion (grand opening, prizes, giveaways)
13. | Advertising (initial media, direct mail, coupons)
| Other expenses (one-time, specifically related to growth or startup)
14.
15.
| Total Growth or Startup Expenses (B)
| Beginning Cash Balance - OR - Additional Cash Required (A - B)
Assumptions for Growth or Startup Expenses Worksheet
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13
14.
15.
Existing Debt Payment Worksheet
This includes all existing debt belonging to the business, whether the source is an owner, family member, relative, friend, bank or supplier. Note: This is for existing debt, not anticipated debt.
Step 1	List all existing debt obligations.
Enter the description and source of the debt next to the numbers in the first section.
Step 2	Complete principal and interest payment amounts.
For each debt obligation on which you are paying interest, enter the monthly principal and interest payments. This schedule should reflect when the payments are actually due, rather than assuming an equal amount in each month (if other than equal monthly payment arrangements have been made). You may have to do some research on existing debt to separate principal and interest in your combined payment. Do these figures involve an assumption about future interest rates? Is it an accurate assumption? List any assumptions in the space provided.
Step 3	Calculate total principal payments, total interest payments, and a grand total for each month (add down the columns).
Step 4	For each debt obligation, calculate yearly totals for principal and interest payments.
Step 5	Check for accuracy (column totals should equal row totals).
Existing Debt Payment Worksheet
| 1 Jan | 2 Feb | 3 Mar | 4 Apr | 5 May | 6 Jun | 7 Jul | 8 Aug | 9 Sep | 10 Oct | 11 Nov | 12 Dec
Principal Payments (list source of debt)
1.
2.
3.
4.
5.
6.
Total Principal
Interest Payments (list source of debt)
1.
2.
3.
4.
5.
6.
Total Interest
Total Principal + Interest
Assumptions for the Existing Debt Payment Worksheet (principal + interest for each source of debt)
1.
2.
3.
4.
5.
6.
Miscellaneous Expenses Worksheet
This budget of miscellaneous expenses should include all expenses not listed on previous budget worksheets. Note that you have already completed budgets for:
Employee Salary/Wages & Benefits (Session 3)
Outside Services (Session 3)
Insurance (Session 3)
Advertising Budget (Session 5)
Occupancy Expenses (Session 3)
Cost of Projected Product Units Sold (current session)
Fixed Assets (current session)
Growth or Startup Expenses (current session)
Existing Debt (current session)
Step 1	Compile a list of miscellaneous expense categories.
The worksheet on the next page lists some common miscellaneous expenses. If you currently run a business, you can review your chart of accounts or old financial statements to determine others that should be listed. New businesses can use a chart of typical account information for similar businesses and add expense items as needed.
Step 2	Complete monthly budget amounts for all miscellaneous expenses.
Step 3	Document your assumptions.
Write your assumptions for each item of miscellaneous expense on the corresponding numbered line.
Step 4	Calculate total expenses for each month (add down the columns).
Step 5	Calculate yearly totals for each expense (add across the rows).
Step 6	Check for accuracy (column totals should equal row totals).
Miscellaneous Expenses Worksheet
| 1 Jan | 2 Feb | 3 Mar | 4 Apr | 5 May | 6 Jun | 7 Jul | 8 Aug | 9 Sep | 10 Oct | 11 Nov | 12 Dec | Yearly Total
Miscellaneous Expense Items
1. Bad debt
2. Car/delivery
3. Supplies
4. Training
5. Other:
6.
7.
8.
9.
10.
Totals
Assumptions for Miscellaneous Expenses Worksheet
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Break-Even Analysis Worksheet
As we learned earlier, the break-even point (BEP) is the point at which total sales cover the cost of product units sold and operating expenses. In other words, it’s the volume of sales at which revenues and expenses are equal. If you sell less than this amount, you experience a net loss.
Step 1	Enter Total Sales, Total Cost of Product Units Sold, and Variable Operating Expenses.
Refer to the appropriate worksheets for these figures. Also, calculate your Gross Margin and Contribution Margin.
Step 2	Calculate the Contribution Margin as a percentage, using the formula on the worksheet.
This tells you the percentage that each dollar of sales contributes towards fixed expenses. Enter this percentage in a decimal format (i.e., 0.347, not 34.7%).
Step 3	Enter your Fixed Operating Expenses (refer to previously completed worksheets).
Fixed operating expenses remain constant when sales or production levels change. Examples include rent, utilities and insurance premiums. Make sure you have included all of your planned operating expenses in the formulas up to this point. Step 1 asked for Product Unit Costs and Variable Costs, such as freight and labor directly related to production. Step 3 accounts for all other operating costs, so include operating costs from all of your worksheets.
Step 4	Calculate the BEP dollar sales level using the formula provided.
Step 5	Calculate the BEP unit sales level by dividing BEP dollars by unit selling price. This is the level of unit sales you need to reach your BEP.
Note: This calculation does not include loan principal payments, or owner draws if your business is a sole proprietorship or partnership. It also includes no provision for profits. How many more units will you have to sell to cover your debt payment, owner’s draw and profit?
Step 6	Reality check: Is your break-even point realistic?
If not, go back and make changes in the budgets to get the BEP to a more realistic level. Start by examining expenses; it’s usually better to cut costs than to assume you can increase sales. Look for expenses that are “wish list” items rather than necessities. Also, check your Growth or Startup Expenses estimates, and check salaries and wages for yourself and your employees to see if they are more than the business can support in a growth or startup phase. Last, check your sales projections. Are they overly pessimistic?
Once you have revised your budgets, repeat the break-even calculation. If your BEP is now realistic, you are ready to move on to the cash flow projection.
Break-Even Analysis Worksheet
Step 1
Total Sales
Total Cost of Product Units Sold | ( - )
Gross Margin | ( = )
Variable Operating Expenses | ( - )
Contribution Margin | ( = )
Step 2	Calculate the Contribution Margin as a decimal percentage.
Contribution Margin ÷ Total Sales: _______ ÷ _______ = 0._______
Step 3	Determine your Fixed Operating Expenses.
Fixed Operating Expenses = $__________
Step 4	Calculate the BEP dollar sales level.
Fixed Operating Expenses ÷ Contribution Margin percentage:  $_______ ÷ 0._______ = $ _______
Step 5	Calculate the BEP unit sales level.
Dollars (from Step 4) $ _______ ÷ Unit Selling Price _______ = _________ units
Note: To calculate the BEP in units of sales, you must know the unit selling price, or the average unit selling price if you are grouping several similar items into your Total Sales number.
How many additional units will you have to sell to cover your debt payment ($________) and your owner’s draw ($__________)? 	__________ additional units
How much profit do you want to make? $ ________ per _____. How many additional units will you need to sell to make your desired profit? ________ additional units
Here’s another way to look at the break-even formulas on a “per unit” basis (including sample numbers to help understand the calculations):
Unit selling price: | $100 | Fixed operating expenses: | $24,000
- Cost of product unit sold: | 50 | ÷ Unit contribution margin: | 40
= Gross margin per unit: | 50 | = Number of units to BE: | 600
- Variable costs per unit: | 10 | x Unit selling price: | 100
= Contribution margin per unit: | $  40 | = Dollars to BE: | $60,000
Cash Flow Projection Worksheets
Now that you’ve finished your sales and expenses budgets, and arrived at a realistic break-even point, you’re ready to create a monthly cash flow projection.
Cash flow projection is a budgeting and goal-setting tool that predicts how much cash will come into your business from sales, investments and borrowing, and how much cash will flow out of your business to pay expenses, buy equipment and take care of other business costs. This is one of the most critical financial tools you will learn to use.
These worksheets will help you calculate projected cash receipts and cash disbursements first for 12 months, and then for two subsequent years. If projected cash receipts (cash in) are greater than cash disbursements (cash out), you’ll have a positive cash flow. If projected cash receipts are less than cash disbursements, you’ll have a negative cash flow. Negative cash flows are indicated by enclosing the number in parentheses, like this: ($1,000).
If you’re planning for expansion or growth, or are starting a new business, your cash flow projections will help you decide how much additional cash you need in the first year, and at what point the business will allow you to meet budgeted expenses and make principal payments on existing and additional debt. It will also tell you when you may need additional cash during the year.
If you are an existing business with no specific growth or expansion plans incorporated in your assumptions, the cash flow projection will tell you if your business can support your current debt level. Is there enough cash to make principal payments and cover budgeted expenses, without injecting additional borrowed funds into the business?
You should already have completed worksheets for most of the line items on this worksheet. If you still have work to do on previous worksheets, please complete them before continuing.
Step 1	Make enlarged copies of the Cash Flow Projection Worksheets and the accompanying Notes to Cash Flow Projection —OR— transfer this worksheet to a spreadsheet and let your computer do the calculations. Using a computer is preferable because you’ll be adjusting the worksheet several times.
Step 2	Enter your Beginning Cash Balance for the first month.
This amount comes from the Growth or Startup Expenses Worksheet. Note that if this amount was listed as “Additional Cash Required,” it will be a negative number in parentheses.
Step 3	Fill in the categories for Cash Receipts, and total them for the first month only.
The line labeled Collect Accounts Receivable applies only if you are extending credit to your customers. You need to know what percentage of your sales are credit sales, and how many days it normally takes to collect, to determine when this cash will flow in.
Step 4	(Service Businesses—skip this step and go to Step 5.) Refer back to Total Product Cost on the Cost of Projected Product Units Sold Worksheet. This represents your total merchandise purchases anticipated for the year. Write that total in the Yearly Total space for Cash Purchases (Merchandise), and then allocate the total to individual months based on when you will make the purchases.
Because merchandise usually must be bought before you can sell it, your next challenge is to determine when your merchandise will be bought and paid for. Look at your monthly projected sales totals to see when you need the most merchandise and when you need the least. Based on your research (or the typical purchasing terms offered in your industry), decide when you will need to purchase merchandise, based on when you anticipate selling it. Then, divide the Yearly Total for Cash Purchases (Merchandise) among the appropriate months.
Last, total the 12 months across and make sure the total equals the initial Yearly Total.
Step 5	Fill in the categories for Cash Disbursements and total them for the first month only.
Most of the items listed come from other worksheets. (Remember: Owner Withdrawals applies only if your business is a sole proprietorship or partnership. Owner salaries in corporations will be included in the Salary/Wages & Benefits category.)
Step 6	Calculate Net Cash Flow for the first month (Total Cash Receipts minus Total Cash Disbursements).
Step 7	Enter New Owner Withdrawal, New Owner Investment, or New Debt.
If the Net Cash Flow is positive and you are a sole proprietorship, you may want to take an owner withdrawal. If so, enter this amount under New Owner Withdrawals. If the Net Cash Flow is negative, you will need additional funds. Was there enough money in the Beginning Cash Balance to cover this month’s negative balance? Or will the necessary funds come from you (Owner Investment) or a lender (New Debt)?
Step 8	Calculate Adjusted Net Cash Flow by adding or subtracting adjustment items from Net Cash Flow.
Step 9	Calculate the Ending Cash Balance for the first month. (Beginning Cash Balance, plus a positive Adjusted Net Cash Flow —OR— minus a negative Adjusted Net Cash Flow).
Step 10	Fill in the Beginning Cash Balance for the second month (which is the Ending Cash Balance for the first month).
Step 11	Repeat the first 10 steps for each of the 12 months. Complete one month at a time!
Cash Flow Projection Worksheets—continued
Step 12	Analyze your cash flow projection.
Remember, this is a management tool. Analyze how the cash is flowing through your business, and look at all the decisions you made that affect cash flow management. For example, look at your decision regarding collection of Accounts Receivable. Is cash being collected too slowly? What happens if you shorten the collection time? Your instructor (or your accountant) can point out other ways to improve your cash flow through similar management decisions. Note: This would be a good time to review Chapter 19 Cash Flow Management.
Step 13	Document your assumptions.
Use the Notes to Cash Flow Projection Worksheet to list your assumptions. Lines are numbered to correspond to the lines on the Cash Flow Projection Worksheet. Your reader needs to be able to tell how you decided on the amounts you put into your worksheet, so be as clear as you can.
Annual Cash Flow Projections—Years Two and Three
To grow your business or to obtain money from traditional financing sources, you’ll need to include cash flow projections for three years. Three-year projections are also highly recommended from a management standpoint. A one-year projection may not be long enough to judge your business’s financial performance, especially during growth or startup.
Lending institutions will usually accept the second and third year financial information in summarized annual form. But for your own benefit, you should continue working through the monthly projections.
Step 1	Carry your Ending Cash Balance from the monthly worksheet to the Beginning Cash Balance of the second year. Then repeat Steps 1 through 11 for Year Two. Use the same method for Year Three. Be sure to mark the years clearly on the worksheet. Don’t forget to adjust for anticipated price increases, inflation, etc.
Step 2	Transfer the Yearly Total information from the monthly projection sheets to the Annual Year Two and Year Three summary sheets on page 7-140.
Monthly Cash Flow Projection Worksheet
| 1 Jan | 2 Feb | 3 Mar | 4 Apr | 5 May | 6 Jun | 7 Jul | 8 Aug | 9 Sep | 10 Oct | 11 Nov | 12 Dec | Yearly Total
Beginning Cash Balance (A)
Cash Receipts
Cash Sales
Collect Accounts Receivable
Sale of Fixed Assets
Miscellaneous Income
Total Cash Receipts (B)
Cash Disbursements
Cash Purchases (Merchandise)
Pay Accounts Payable
Salary / Wages & Benefits
Owner Withdrawals
Non - Labor Expenses
Outside Services
Insurance
Advertising
Occupancy Expenses
Miscellaneous Expenses
Fixed Assets
Debt Payment - Old
Total Cash Disbursements (C)
Net Cash Flow (B - C)
Adjustments to Net Cash Flow
(+) New Debt
(+) New Owner Investment
(-) New Debt - Interest
(-) New Debt - Principal
(-) New Owner Withdrawals
Adjusted Net Cash Flow (D)
Ending Cash Balance (A + D)
Cash Flow Projections: Years 2 and 3—Summary Worksheet
Year 2 | Yearly Total | Year 3 | Yearly Total
Beginning Cash Balance (A) |  | Beginning Cash Balance (A)
Cash Receipts |  | Cash Receipts
Cash Sales |  | Cash Sales
Collect Accounts Receivable |  | Collect Accounts Receivable
Sale of Fixed Assets |  | Sale of Fixed Assets
Miscellaneous Income |  | Miscellaneous Income
Total Cash Receipts (B) |  | Total Cash Receipts (B)
Cash Disbursements |  | Cash Disbursements
Cash Purchases (Merchandise) |  | Cash Purchases (Merchandise)
Pay Accounts Payable |  | Pay Accounts Payable
Salary / Wages & Benefits |  | Salary / Wages & Benefits
Owner Withdrawals |  | Owner Withdrawals
Non-Labor Expenses |  | Non-Labor Expenses
Outside Services |  | Outside Services
Insurance |  | Insurance
Advertising |  | Advertising
Occupancy Expenses |  | Occupancy Expenses
Miscellaneous Expenses |  | Miscellaneous Expenses
Purchase of Fixed Assets |  | Purchase of Fixed Assets
Debt Payment - Old |  | Debt Payment - Old
Total Cash Disbursements (C) |  | Total Cash Disbursements (C)
Net Cash Flow (B - C) |  | Net Cash Flow (B - C)
Adjustments to Net Cash Flow |  | Adjustments to Net Cash Flow
(+) New Debt |  | (+) New Debt
(+) New Owner Investment |  | (+) New Owner Investment
(-) New Debt - Interest |  | (-) New Debt - Interest
(-) New Debt - Principal |  | (-) New Debt - Principal
(-) New Owner Withdrawals |  | (-) New Owner Withdrawals
Adjusted Net Cash Flow (D) |  | Adjusted Net Cash Flow (D)
Ending Cash Balance (A + D) |  | Ending Cash Balance (A + D)
Notes to Cash Flow Projection Worksheet
| Notes
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Other Information:
NOTE: Make copies of this worksheet to use with your projections for Years 2 and 3.

Worksheets Assignment for Session 8
Complete and review all the worksheets in this session before writing the corresponding section of your business plan. Note that learning to work with sales forecasts and cash flow projections takes time. In particular, it will take some research to decide which expenses to include in the Operating Expenses section. Remember to include all costs you identified in previous worksheets, and be sure to document your assumptions on the Notes to Cash Flow Projections.
Writing Your Business Plan
Use the information from this session to write the sections of the business plan listed below. Start with the headings and subheadings just as they’re shown here. Then, follow the instructions under each subheading to write that section of your business plan. Section III. Business Organization and Operations C. Managing Books and Records Review the Recordkeeping Checklist Worksheet and your answers to Questions 1 through 4. Describe how you will manage your bookkeeping and recordkeeping activities. State who is responsible for key activities, and how you will oversee these activities. Also, review the Internal Controls Worksheet and briefly explain any internal controls you will use to protect your business’s finances and records. Section V. Financial Plan A. Capital Requirements Startup Costs Review the Growth or Startup Expenses Worksheet. Summarize the total estimated expenses required to launch or expand your business, including what those costs are and how you estimated them. B. Sales Forecasts Make a copy of your Sales Forecast Worksheet and include it in this section. C. Cash Flow Projections Make copies of your Monthly Cash Flow Projection for Year 1 and your Annual Cash Flow Projections for Years 2 and 3, and include them in this section along with the Notes to Cash Flow Projection Worksheet. Explain the differences in projections by including any assumptions that are unique to Years 2 and 3.