Income taxes can be forecast based on scheduled estimated income tax payments, on their respective due dates, or year end tax payments to be made when an income tax return is filed. The forecast amount to be paid should be the income tax expense accrued based on actual net income for the year, plus or minus timing and other differences between net income for book and tax purposes, and less estimated income tax payments made during the year, or a credit applied from last year.
Payroll tax disbursements can be forecast as the amounts withheld from employees’ pay, plus the employer payroll taxes, which can be calculated as a percentage of taxable employee compensation. The timing of the forecast disbursement depends on the due date for filing payroll tax returns and paying the tax.
The forecast amounts for disbursements for excise and other taxes should be based on the amounts accrued based on taxable activity for the period, to be disbursed on the respective due dates for the different returns.
Disbursements for real estate and personal property taxes can be forecast based on historical amounts, taking into account any additions to fixed assets during the period that affect the property’s tax appraisal value, and any additional assessments, for local improvements for example.
Insurance payments are generally made in advance, and the prepayments can be forecast based on the due dates for the premiums. If the premiums are payable in installments that are due on certain dates of each month, for example, this should be taken into account for forecasting.
A certain amount may be forecast to cover other miscellaneous expenditures that are not necessarily expected, but that invariably come up. This may be forecast as a certain dollar amount or as a percentage of total expenses, based on historical experience and any expected changes in the overall level of operations.
Cash used in investing activities includes:
Capital expenditures, such as purchases of land, buildings, machinery and equipment, vehicles, furniture and fixtures, and other fixed assets. These expenditures could be forecast based on outstanding purchase orders, equipment replacement plans, and on budgeted capital expenditures.
Purchases of marketable securities, deposits, mutual fund shares, and stocks or bonds in other companies, or interests in partnerships or other companies. Short-term investments may be a function of the cash flow forecast itself, and normal cash management practices. More major investments may be forecast based on minutes of meetings of the board of directors or other governing groups.
The following are some examples of cash used in financing activities:
Loan installment payments. These could be mortgages, unsecured bank loans or loans from other parties. Generally the amount of the payment and its due date will be specified in the loan agreement and can be forecast accordingly.
Dividend payments, in the case of a corporation, are also considered as cash used in financing activities (equity financing). Dividend payments should be specified in the minutes of meetings of the company’s board of directors. Purchases of treasury stock (buying back the corporation’s own stock) are also considered a use of cash in financing activities.
Borrowing that is needed to finance operations may be a function of the cash forecast, in the case of deficits, just as short-term investments are, in the case of surpluses.