Cash Flow

Question 1

Cash Flow

Answer 1

Cash flow is the movement of the net balance of cash going in and out of a business at a specific point in time, e.g. payroll.
Cash inflows- cash going into the business
= Total sales - total fixed costs + total variable costs
Cash outflows- cash leaving the business
Net cash flow = inflows - outflows

Question 2

Advantages of cash flow forecast

Answer 2

Allows you to spot cash gaps before they hit your business.

Can be helpful to plan for an unexpected payment. 

Question 3

Disadvantages of cash flow forecast

Answer 3

Can be affected by unforeseen factors e.g. significant increase of competition.
Organisations must make assumptions to generate a forecast which means that the forecast won’t be accurate or helpful if estimations weren’t close.