Any financial plan must begin with a forecast of sales for the business. The cash flow budget is no different — a sales forecast is the first step. Any forecast will include some uncertainty. Your sales forecast probably won't match your actual sales because of the many variables that ultimately affect the final amount. The economy, inflation, competitive influences, and a whole range of other variables will affect your actual sales. No matter how much uncertainty you associate with these variables, a sales forecast is still required.

 

Using your business's previous year's sales amounts is an excellent starting point for your sales forecast. This should be adequate enough for beginning your cash flow budget. Using last year's sales amounts should provide you with enough insight to predict any seasonal fluctuations or trends when preparing this year's sales forecast.

The sales forecast is the first step in preparing a cash flow budget — an important step in predicting major cash problems, or hopefully, cash flow successes.

 

John Divot owns a golf supply retail store. John will use last year's sales amounts to prepare his cash flow budget for the next six months. Here is the sales information from the first six months of last year:

John expects sales for this year to be 1 percent higher in the off season and 1.5 percent higher during the golf season; which begins in April. John forecasts his sales for the first six months of this year to be as follows: