cash flow

Question 1

what is a cash flow forecast ?

Answer 1

Cash flow forecasting involves estimating your future sales and expenses. It is the forecast of inflows (sales, sources of finance) and outflows (wages, rent, maintenance, utility bills, transportation, raw materials, advertising).

Question 2

what are the advanatges of making a cash flow forecast?

Answer 2

-Market research and plan carefully inflows and outflows
-Key document in raising finance, e.g.) bank loans

Question 3

what are the disadcantages of making a cash flow forecast?

Answer 3

-Time consuming
-Prediction, not accurate as there could be changes with consumers and finance, so must be monitored and amended

Question 4

what is the importance of cash flow?

Answer 4

-Business may not be able to pay their suppliers, which will lead to them no longer supplying your business.
-Business may not be able to pay their mortgage, resulting possibility of being evicted.
-May not be able to pay wages of staff, leading to less productivity as staff will not want to come in.
-Business may not be able to afford to advertise, resulting in no gain of new customers or repeating purchases, affecting sales revenue.
-Poor cash flow could cause banks to not want to loan or gain other sources of finance.

Question 5

how can cash flow be improved?

Answer 5

-Reduce costs - finding a different supplier (however quality, reliability may be affected), identify waste and unnecessary costs, cut staff (however this may decrease productivity)
-Increase inflows – increase sales by advertising, make different products to reach a wider audience, increase (however, customers may go to competitors) and decrease price (however, need to sell more)