“Sales Forecasting and Cash Flow” Please respond to the following:
2) Student Response – Michael Gibson
An important step in developing a projected (pro forma) income statement is to create a sales forecast and calculate anticipated revenue for the business. Imagine you are creating a business—develop a sales forecast and estimate revenue for the first year of operation and describe the process you used to arrive at your estimates.
Here is a projected (pro forma) income statement for a cupcake store.
1) You will profit $5 on every cupcake that you sell.
2) Before your business opens its doors, you will need to buy an oven, some supplies, and your initial ingredients.
3) You anticipate that for every existing customer you will gain 2 more new customers the next month.
4) Your goal is to hire your first employee by month 6.
5) Your goal is to rent a space for your shop for the first two years, but then you plan to be producing enough cupcakes that you will want to buy a facility for $500,000 sometime during year 3.
The three (3) primary causes of cash flow problems in a business are accounts receivable, accounts payable, and inventory. Imagine you are creating a business—identify one (1) cause of cash flow problems that you believe will be the most challenging for your company. Next, discuss the strategies you will use to mitigate problems in this area.
Inventory describes the extra merchandise or supplies your business keeps on hand to meet the demands of customers. An excessive amount of inventory hurts your cash flow by using up money that could be used for other cash outflows. In a hotel, you have to stock your rooms. You will have to manage open and unbook rooms. This will affect you being able to manage your accounts payable to pay salaries, taxes, and marketing expenses.
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