Financial Guide for SMEs - SME Corporation Malaysia

Financial Guide for SMEsOther Cash OutflowsIn addition to cost of goods sold and operational expenses, you may also haveother cash outfl ows during the operations of the business. Some examples ofcash outfl ows include:•••••Purchase of assets;One-off bank fees (i.e. establishment fees);Principal repayments of the loan;Payments to the shareholders (e.g. dividends); andInvestment of surplus funds.Step 5: Finalising the Cash Flow ForecastNow that all the relevant information has been gathered, it is time to prepare theforecast. At the beginning you would have determined the time period for theforecast. Remember, cash fl ows are all about timing and the fl ow of cash, soyou will need to have an opening bank balance, then add in all the cash infl owsand deduct the cash outfl ows for each period, usually by month. The numberat the end of each month is referred to as the ”closing” cash balance and thisnumber becomes the opening cash balance for the next month.An example of Adam’s cash fl ow forecast for year two has been provided onthe following page. This cash fl ow forecast shows that his business is goingto borrow RM20,000 to purchase a car to assist in his sales and marketing byvisiting his potential customers. Remember that Adam included this in hisassumptions (refer to page 34).The forecast shows that the RM20,000 is borrowed in February and the car ispaid for in the same month. The cash infl ows include anticipated sales receiptsas shown in the table on page 74. Remember, this is cash collected from sales,not the actual sales made. In the cash outfl ows section, all the monthly expensesas they are paid have been included and also cash outfl ows from expensesincurred for the loan (establishment fee etc.).By preparing the cash flow forecast, it can be easily seen that if Adam were toborrow the RM20,000 to purchase the car, he will still have not enough cash tocover all expenses for the period for which the forecast has been prepared. Themain reason for this is that a percentage of sales is made on credit. This meansthat while sales will increase after the purchase of the car, the time lag betweenbuying the car and increase in sales, and then the cash being collected meansthat his business will need an additional RM3,267 (maximum overdrawn amountas shown in month 5) to ensure that he has enough cash to cover the timingdifferences.76Chapter 6 p66-78 Eng.indd 768/15/11 5:02:25 PM