Cash flow forecast Flashcards
Is cash a king or not?
Yes
why is cash flow important for a business?
it needs to ensure a positive cash balance in order to be able to meet day to day financial obligations.
what is a cash flow forecast?
It is a forward looking statement that tries to predict cash inflows and outflows in the future.
What is a cash flow statement?
Is a backward looking statement that shows what happened to cash inflows and outflows.
why is a business like a bathtub?
If a bath is empty the bath has ran out of liquid. Same here if a biz runs out of cash they become liquid (liquidation)
Look at diagram in book
what are the different factors of forecast cash inflows?
List the 4
- Owners investment or other source of finance.
- Cash sales.
- Debtor payments (money you are owned).
- Any investment the company has eg might rent out another property.
what are the different factors of forecast cash outflows?
List the 4
- Payment on fixed costs
- Payment of variable costs
- Unforeseen expenses
- Payment terms
equation of net cash flow
cash inflows - cash outflows
equation of closing balance
opening balance + net cash flow
Equation of opening balance
the closing balance from the previous month
why is it important to have cash flow forecast in detail?
List 5
1.to help secure finance from potential investors or the bank
2. To identify the timings and significance of any potential shortfalls in cash you might have
3. Help to identify what they can do if there are problems
4. To give confidence about short term survival
5. Provide a guide for measuring actual cash flow for your biz
What are the limitations to have cash flow forecast?
List the 4
- Based on predictions of future inflows and outflows so may be inaccurate
- Might have used market research but it is only a small sample it may not be representative
- impact by external factors that biz can not control eg interest rates on loans going up
- Your sale forecast (part of the inflow) might be overestimated
