2.1.2 : Planning + Cash Flow

Question 1

Why is cash flow important ?

Answer 1

Cash flow is a dynamic and unpredictable part of life for most businesses
Cash flow problems are the main reason why a business fail.
Regular and reliable Chas flow forecasting an address many of the problems

Question 2

Why is cash flow forecasting important ?

Answer 2

Cash is king - cash is the blood of a business
If businesses run out of cash they are bound to fail
Few businesses have unlimited finance so managing it and their cash is highly important

Question 3

Why should businesses produce a cash flow forecast ?

Answer 3

Advanced warnings of cash shortages
Makes sure that businesses can afford to pay their suppliers or shareholders
Spots problems with customer payments
Important part of financial control
Provides reassurance for investors

Question 4

What are the cash flow mechanics ?

Answer 4

Net cash flow is the difference each month between cash inflows and cash outflows
Opening balance s the amount a business tarts with each month
Closing balance + closing balance + net cash flow
Negative closing balance suggests business needs bank overdraft

Question 5

What are the key features of a good cash flow forecast ?

Answer 5

It is updated regularly
Makes sensible assumptions
Allows for unexpected changes

Question 6

What is cash flow problem ?

Answer 6

When a business does not have enough cash to be able to pay its liabilities

Question 7

What are common problems with cash flow forecast ?

Answer 7

Sales prove lower than expected
Customers do not pay up on time
Costs prove higher than expected
Imprudent cost assumptions