Budgets & Cash Flow Flashcards
3 steps of budgetary control
Setting targets
Monitoring progress
Taking corrective action when necessary
Main elements of a main budget
Budgeted turnover
Budgeted costs
Budgeted trading profit
Types of budget
Main budget
Sales budget
Expenditure budget
Operating budget
Anticipated profit (sales - operating)
Cash flow forecast
How are budgets prepared
Based on past information
What is a cash flow forecast and what is its purpose
An analysis of predicted expenditures and incomings for a fixed period
Advises business & resource planning and forecasting business performance
Possible actions arising from cash flow forecasts
Early warning to predict insolvency
Not taking on a new contract
Adjustment of work scheduling
Negotiation with supply chain and financial institutions
Key considerations and elements of cash flow forecasting
Scope
Dates of data and compilation
Contract provisions
Value and cost
Other fees
Valuation methods
Staged payments
Milestone payments
Activity schedule
3rd party certificate
Accuracy of valuation increases as cash flow accuracy decreases
The methods are listed in order of most accurate cash flow forecasting
What is capital lock up
Negative cash flow in early stages of a contract
How is capital lock up managed
Financed through borrowing and company cash reserves
Factors affecting capital lock up
Margin
Retention
Loss/expense claims
Front-end loading
Overmeasurement
Back end loading
Payment delays (client and supply chain)
Company cash flow
S curve distribution of cost/value
1/4 - 1/3 rule
1/4 of cost/value accrues in the first and final thirds of a project, with 1/2 being accrued in the middle 1/3 of the project
