2.1.4 Planning

Question 1

What is cash inflow?

1

Answer 1

• Sum expected to arrive each month

Question 2

How do you calculate the monthly balance (net cash flow) and what does this show?
2

Answer 2

• Cash inflow - cash outflow

- Shows each month if there’s a + or - movement of cash

Question 3

What does the opening balance show?

1

Answer 3

• Amount business had at beginning of month (last months closing balance)

Question 4

How do you calculate the closing balance and what does it show?
2

Answer 4

• Opening balance + monthly balance (net cash flow)

- Amount of cash at end of month

Question 5

How can a business improve its cash flow?

4

Answer 5

• Leasing/renting not buying equipment
• Postpone expenditure
• Keep stock minimum (JIT)
• Producing/distributing ASAP

Question 6

What are the limitations of a cash flow forecast?

3

Answer 6

• Certainty when prediction
• Not account for externals
• Overestimate sales and under issues (^optimism)

Question 7

How may you interpret a negative closing balance?

1

Answer 7

• Need extra finance, overdraft?

Question 8

What are the uses of a cash flow forecast?

3

Answer 8

• Allow growth, contingency plan for worst case scenario’s (^risk taking)
• Foresee cash shortages (arrange finance)
• Gain investors confidence (provided to stakeholders)

Question 9

What are the pros of a business plan?

3

Answer 9

• Attract finance
• Ensure consideration of problems
• Maintain direction (quantitative targets)

Question 10

What are the key areas of a business plan?

2

Answer 10

• Operational plan

- Financial plan (cash flow forecast)