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Do you know what the difference between expected future cash flow and expected future returns is?

by , 20 June 2014
Planning your business finances is all about preparing for the future. This includes the money you're expecting to come into the business.

But when there are so many areas where that money could come from, it's easy to get confused.

Your bookkeeping can get very muddled if you put the expected cash in the wrong place.

To help resolve some of this confusion, we're revealing the difference between your expected future cash flow and your expected future returns. Keep reading to ensure you plan your future finances correctly...

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Your expected future cash flow: Explained

According to the Practical Accountancy Loose Leaf Service, expected future cash flow is the amount of income you expect to get from a financial decision.
 
This could be a project, for example. You'll work out how much you expect to get, based on how much it's currently worth, says financial-dictionary.com.
 
So, for example, if you plan to build an apartment building and sell it, your expected future cash flow is the amount of money you think you'll get from the sale. You'll work this out based on current property values. 
 
So what is your expected future return?
 

Your expected future return: Explained

The Practical Accountancy Loose Leaf Service says your expected future return is the amount you expect to get back the return on investments. Use this as a tool to decide if an investment will be worth it and have a positive outcome, says Investopedia.com
 
For example, you invest money in a building project. Your expected return is the amount you hope to get back from that investment.
 
You'll work out your expected investment return using past information. This means it's not 100% exact because market values are always changing.
 
There you have it: Your future cash flow and returns are different because they come from different sources. Ensure you know which to include in your books. 
 
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