Let's Begin The Forecasting Process
You should start with the development of the P&L. As you know, there is a logical flow to the P&L. The top is the sales, below that is the cost of goods sold. Next would be a series of expense departments with the final department being the general and administrative expenses. In future sections of this book I will be discussing some methods for determining the assumptions for sales and expenses.
In the meantime…the second step in the process should be the development of the cash flow forecast, along with the cash flow assumptions. Basically, there will be two primary assumptions to be used regarding cash flow.
The first step in developing cash flow is the manner in which sales will be collected. My preference is to forecast a slow collection process.
My preference regarding expenses is to assume all expenses will be paid immediately. This may not be very likely, but this is the most conservative method. The forecast produced will be almost a worst-case scenario for cash payout assumptions. Remember, we can always adjust assumptions to be more realistic at a later date.
Source: Harvey A. Goldstein, CPA , Granville Publications
You should start with the development of the P&L. As you know, there is a logical flow to the P&L. The top is the sales, below that is the cost of goods sold. Next would be a series of expense departments with the final department being the general and administrative expenses. In future sections of this book I will be discussing some methods for determining the assumptions for sales and expenses.
In the meantime…the second step in the process should be the development of the cash flow forecast, along with the cash flow assumptions. Basically, there will be two primary assumptions to be used regarding cash flow.
The first step in developing cash flow is the manner in which sales will be collected. My preference is to forecast a slow collection process.
My preference regarding expenses is to assume all expenses will be paid immediately. This may not be very likely, but this is the most conservative method. The forecast produced will be almost a worst-case scenario for cash payout assumptions. Remember, we can always adjust assumptions to be more realistic at a later date.
Source: Harvey A. Goldstein, CPA , Granville Publications