Cashflow Forecast: Examples of Cash Flow Forecasts (free Business e-Coach)

Examples of Financial Forecasts

Partially adapted from "Three Keys to Obtaining Venture Capital", by PricewaterhouseCoopers LLP

The financial forecast illustrated below represent a fast-growth, technology-oriented manufacturing company. The forecasts are shown on a yearly basis. An actual business plan, however, should show monthly figures until breakeven and then quarterly statements for subsequent years. The assumptions are included as a guide and may not apply to all start-up companies. Be sure to consult your financial advisor.

NewCo, Inc. Income Statement (000s omitted)
	Year 1	Year 2	Year 3	Year 4	Year 5
Product Sales	$1,197	$3,699	$7,500	$16,685	$37,349
Service Revenue	81	572	1,509	2,499	3,934
Total Revenue	1,278	4,271	9,009	19,184	41,283

Cost of Sales
Direct Materials	474	995	2,434	4,532	11,674
Overhead	164	705	900	1,860	2,708
Service Cost	41	286	755	1,250	1,967
Total Cost of Sales	679	1,986	4,089	7,642	16,349

Gross Margin	599	2,285	4,920	11,542	24,934

Operating Expenses
Engineering	270	462	618	1,158	1,958
Marketing / Sales	351	829	1,605	3,109	5,968
Administration	1,465	1,660	2,154	2,805	4,179
Total Operating Expense	2,086	2,951	4,377	7,072	12,105

Income Before Int. and Tax	(1,487)	(666)	543	4,470	12,829
Interest Expense	0	0	0	0	0
Interest Income	33	21	44	118	340
Income (loss) Before Taxes	(1,454)	(645)	587	4,588	13,169

Tax Expense	0	0	0	1,231	5,268

Net Income (loss)	$(1,454)	$(645)	$(587)	$3,357	$7,901

NewCo, Inc. Balance Sheet (000s omitted)
	Year 1	Year 2	Year 3	Year 4	Year 5
Assets
Current Assets
Cash	$365	$657	$548	$363	$2,332
Accounts Receivable, Net	256	1,452	2,152	5,522	10,991
Inventory	211	909	1,312	2,775	6,753
Total Current Assets	832	3,018	4,012	8,660	20,076

Property, Plant and Equipment	64	137	248	430	690
Less Accumulated Depreciation	14	50	115	215	366
Net Property, Plant and Equipment	50	87	133	215	324

Other Long-Term Assets
Organization Costs	5	5	5	0	0
Less Accumulated Amortization	2	4	5	0	0
Total Other Long-Term Assets	3	1	0	0	0

Total Assets	$885	$3,106	$4,145	$8,875	$20,400

Liabilities
Short-Term Liabilities
Accounts Payable	114	282	473	999	2,609
Accrued Expense	191	329	503	848	1,398
Salaries Payable	10	20	31	42	83
Taxes Payable	0	0	0	308	1,317
Total Short-Term Liabilities	315	631	1,007	2,197	5,407

Long-Term Liabilities
Long-Term Debt	0	0	0	0	0
Reserve for Warranty	24	74	150	333	747
Total Long-Term Liabilities	24	74	150	333	747

Tax Liabilities	339	705	1,157	2,530	6,154

Equity
Common Stock	500	500	500	500	500
Preferred Stock	1,500	4,000	4,000	4,000	4,000
Retained Earnings	(1,454)	(2,099)	(1,512)	1,845	9,746
Total Equity	546	2,401	2,988	6,345	14,246

Liabilities and Equity	$885	$3,106	$4,145	$8,875	$20,400

NewCo, Inc. Statement of Cash Flows (000s omitted)
	Year 1	Year 2	Year 3	Year 4	Year 5
Cash Flows From Operating Activities
Net Income (loss)	$(1,454)	$(645)	$ 587	$3,357	$7,901
Add: items not requiring cash in the current period
Depreciation / Amortization	16	38	66	100	151
Changes in Operating Assets and Liabilities
Assets and Liabilities
Accounts Receivable	(256)	(1,196)	(700)	(3,370)	(5,469)
Inventory	(211)	(698)	(403)	(1,463)	(3,978)
Accounts Payable	114	168	191	526	1,610
Accrued Expense	191	138	174	345	550
Salaries Payable	10	10	11	11	41
Taxes Payable	0	0	0	308	1,009
Reserve for Warranty	24	50	76	183	414
Other Long-Term Assets	(5)	0	0	0	0
Net Cash Provided by (used in) Operating Activities	(1,571)	(2,135)	2	0	2,229
Cash Flows from Investing Activities
Capital Expenditures	(64)	(73)	(111)	(182)	(260)
Net Cash Used in Investing Activities	(64)	(73)	(111)	(182)	(260)
Cash Flows from Financing Equity Investment	2,000	2,500	0	0	0
Net Cash Provided by Financing Activities	2,000	2,500	0	0	0
Change in Cash	365	292	(109)	(185)	1,969
Cash, Beginning of Year	0	365	657	548	363
Cash, End of Year	$365	$657	$548	$363	$2,232

NewCo, Inc.

Summary of Financial Assumptions

Sales:

The sales forecast for product reflects the following unit and pricing assumptions:

Year

Units

Unit Price

Product Revenues*

Service Revenues

Total Revenues

$28,500

$1,197

$ 81

$1,278

137

27,000

3,699

572

4,271

300

25,000

7,500

1,509

9,009

710

23,500

16,685

2,499

19,184

1,690

22,100

37,349

3,934

41,283

* 000s omitted: small rounding adjustment included

Product revenue is recognized at time of shipment
Declining unit prices reflect savings from economies of scale as well as a more competitive environment beginning in year two.
Total revenue reflects the company's target of owning 10% of the market by year five
Service revenue increases are due to growing product-installed base

Expenses:

Salaries are based on competitive compensation
Operating expenses include estimates for supplies, travel and telephone

Balance Sheet:

Accounts receivable are collected 72 days from sales (turnover rate of five times a year)
The reserve for warranty is 2% of product sales
Organizational costs are amortized over three years
Inventory is assumed to turn on average three times a year.
Fixed assets include both purchased equipment and leasehold improvements
Depreciation is based on three- to five-year lives
Accounts payable reflect a 60-day payment cycle
Accrued expense includes overhead cost, service cost and operating cost for one month
Salaries are paid bi-monthly
Taxes are paid in the month following each fiscal quarter and are assumed to be at a combined rate of 40%
Income tax expense assumes that losses will carry forward until income is earned. Years three and four tax expenses are reduced by the net loss carryforwards of prior years
Preferred and common stock are issued as shown

Cash-Flows Statement:

The cash flows statement is based on the spending and payment decisions of the income and balance sheets
Equity investment includes founders' and initial investors' common stock of $500,000, plus the venture capitalists' investment of $1,500,000

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