In forecasting the uses of cash in operating activities, it should be kept in mind that cash expenditures will not necessarily be the same as operating expenses for income statement purposes. By its nature, a cash flow forecast is prepared on a cash basis, so while many cash expenditures also represent operating expenses, there will be some timing differences, such as prepaid expenses and payments of expenses accrued in prior periods.
The following are some examples of the items to be considered in forecasting cash used in operating activities:
Payroll. From an income statement perspective, payroll expense is for gross salaries and wages, but from a cash flow standpoint you would have cash disbursements for net salaries and wages, and other cash disbursements for payroll taxes and other amounts withheld. These disbursements are probably made on different dates. For example, net paychecks may be paid on the last day of the month, and taxes withheld are paid during the first part of the following month.
Payments to suppliers and contractors. Cash disbursements can be forecast based on invoice due dates from an accounts payable maturity report.
Rent payments are generally made on the same date each month, and this item can be forecast based on lease agreements.
Payments for service agreements or preventive maintenance agreements can be forecast based on the terms of the agreements. Other repairs could be forecast based on historical experience, adjusted for additions or reductions in machinery and equipment, for example. The age, working condition, and general maintenance requirements of machinery and equipment may also be factors in forecasting disbursements for repairs and maintenance.
Advertising and promotion expenditures may be based on agreements, and can be forecast accordingly. Expenditures could also be forecast as a function of production or sales, taking into account any additional disbursements associated with plans to launch new products or services.
Payments for utilities are also generally paid around the same date each month, and can be forecast based on historical experience, changes in the level of activity, rate adjustments, seasonal variations, and growth of your business.
Tax payments, including federal, state and local income taxes, payroll taxes, excise taxes and others.