3b-Cashflow forecast Flashcards
Q: What is cash flow?
A: Cash flow is the movement of money into and out of a business over a period of time.
Q: Why is cash flow important?
Ensures a business can pay its bills and expenses.
Helps identify potential cash shortages.
Allows businesses to plan for investment and growth.
Essential for securing loans from banks.
Q: What is a cash flow forecast?
A: A cash flow forecast is a financial planning tool that estimates the expected inflows (receipts) and outflows (payments) of a business over a set period.
Q: What are the main parts of a cash flow forecast?
Opening balance
A:
Opening Balance – The amount of cash available at the beginning of the period.
Q: What are the main parts of a cash flow forecast?
Cash inflows
Cash Inflows (Receipts) – Money coming into the business, such as:
Sales revenue
Loans received
Investments
Grants or funding
Q: What are the main parts of a cash flow forecast?
Cash outflows
Cash Outflows (Payments) – Money going out of the business, such as:
Rent and wages
Stock purchases
Utility bills
Loan repayments
Q: What are the main parts of a cash flow forecast?
Net cash flow
Net Cash Flow – The difference between inflows and outflows:
Net Cash Flow = Total Inflows - Total Outflows
Q: What are the main parts of a cash flow forecast?
Closing balance
Closing Balance – The amount of cash at the end of the period:
Closing Balance = Opening Balance + Net Cash Flow
Q: What are strategies to improve cash flow?
Reduce outflows
Reduce Outflows:
Negotiate better deals with suppliers.
Delay payments where possible.
Reduce unnecessary expenses.
Q: What are strategies to improve cash flow?
Increase inflows
Increase Inflows:
Offer discounts for early customer payments.
Increase sales revenue through marketing.
Arrange loans or overdraft facilities.
Q: What are strategies to improve cash flow?
Manage credit terms
Manage Credit Terms:
Reduce customer credit periods.
Use factoring (selling invoices to get immediate cash).
Q: What are the common causes of cash flow problems?
4
Low sales revenue – Not enough money coming in.
High costs – Too many expenses, reducing cash availability.
Late customer payments – Delayed inflows create shortages.
Overtrading – Expanding too quickly without enough cash reserves.
Q: How can businesses solve cash flow problems?
Short term solution
Short-term solutions:
Arrange overdraft facilities.
Delay payments to suppliers.
Increase short-term borrowing.
Q: How can businesses solve cash flow problems?
Long term solution
Long-term solutions:
Improve profitability by increasing sales.
Control costs and reduce waste.
Renegotiate credit terms with customers and suppliers.
