and the remaining 60% will be for cash. On line 2 of the Cash Flow Forecast, theyll enter these credit sales: $4,400 for January; $4,400 for February; and so forth throughout the forecast.     3.Collections of Credit Sales.Skip this item if you dont plan to sell merchandise or services on credit. Your cash receipts are reduced when a sale is made for credit instead of cash. On the other hand, your cash receipts increase when you collect the money from a credit sale you made earlier. This Cash Flow Forecast shows you exactly how much your receipts will be reduced and increased as a result of your credit policies. Even though your customers dont pay you right away, they eventually pay you. Your job is to figure out when theyll do so. If you grant your customer your normal 30-day terms, it usually takes 60 days to get paid. Heres why. You make a sale on day one, then write a statement at the end of the month and mail it to the customer. He pays it 30 days after he gets the statement. Of course, some people pay sooner and some people pay later. In a well-run business with good paying customers that grants 30 days to pay bills, the average turnaround will be 45 to 60 days.     Make an estimate of the number of months you anticipate as an average lag time between a sale and the collection of the bill. Most businesses use two months. Its easier to use whole months for this purpose than to use portions of months. If you think 45 days is the likely answer, use two months-dont use one and one-half months. Enter the number of months in the heading for line 3.     Example: If Mickey and Michele collect bills in an average of two months, the credit sales that were just subtracted from monthly sales will be added back two months later. In this example, the business starts up in January and there are no outstanding accounts from the previous year. As you can see, the delay in collections means that the M & M Copy Shop will have an $8,800 cash flow reduction in January and February. This means they need at least nine thousand dollars in working capital to sustain them during the first two months.     M & M Copy Shop Cash Flow Forecast Credit Sales and Collections, Six Months ($000s)       Now that you see how it works, complete your monthly Cash Flow Forecast for two years, writing in the cash collections in the month you collect the money on line 3.     4.Credit Purchases. Make an estimate of how the timing of your purchases will affect your cash flow. Most businesses buy merchandise from their suppliers on credit and delay paying them for a time. Most suppliers will grant you 30 days to pay your bills on a fairly routine basis, if they approve your credit application. That way, you get to use their money for a while, just like your customers use your money if you sell on credit.     Heres how to complete this section of the Cash Flow Forecast. First, make an estimate of the percentage of your total goods and services you expect to buy on credit. (See line 4.     Next youll calculate the dollar costs of purchases your business will buy on credit each month. To derive that figure, multiply each months cost of sales by the estimated percentage of credit purchases. And write the answer on line 4. Note that they increase cash flow.     Example:Mickey and Michele estimated that theyd buy approximately 60% of their purchases on credit. Their January cost of sales is $3,600, so the credit purchases come to $2,160 ($3,600 x 0.6 = $2,160). They round this figure to $2,200. Heres how it looks for a few months at the M & M Copy Shop. On line 4 of their Cash Flow Forecast, theyll enter their credit purchases: $2,200 for January; $2,200 for February; $2,500 for March; and so forth.