Cash Flow Forecast Flashcards
What is the definition of a cash flow forecast
It is a statement that identifies the money coming in and the money going out of a business over a period of time
What is an inflow
The money the business receives
Coming into a business
What is an outflow
Any money that leaves the business
Coming out of the business
Give examples of inflows
Sales of products Sales of assets Interest in savings Capital from owners Bank loans
Give examples of outflows
Payment to suppliers Rent Wages Bills Advertising Equipment Machinery Stuck Interest on a loan
What are “ receipts “ also known as
Inflows
what are “payments “also known as
Outflows
How to calculate the net cash flow
Total inflows - total outflows
How to calculate the closing balance
Net cash flow + opening balance
If u have a negative closing balance what is this known as ?
A deficit ( when a business does not have enough money to cover the outflows )
If I have a positive closing balance what is the known as ?
A surplus ( when a business has enriched extra money in their account )
What is a deficit
When a business does not have enough money to cover the outflows
What is a surplus
When a business has enough extra money in their account
What does cash flow forecast not show a business
Profit and loss!!!!!
What is the difference between profit and cash
Profit is the amount of money that a business has left once all costs have been paid
Whereas cash is the money that the business has available to spend at any specific moment
How can a business increase its cash inflows
Improve cash flow from customers
Increase sales revenue
How can a business decrease its cash outflows
Reduces the number of employers
Reduce the orders of materials and stock
What causes cash flow problems
The inflows are too low the outflows are too high
What could be the cause behind high outflows
Over spending
Over investment
Too much stock
Why is a negative cash flow not always a problem
It may only be tempting
The business can obtain additional finanace in the short term eg bank loan
What is a negative cash flow a problem
This may mean they do not have the cash to pay their suppliers
This may mean they do not supply the business in the future which will mean the business can’t produce their products to sell
Why is a surplus of a cash flow positive
The business should always have extra cash for any unexpected coast eg machinery braking
Why is a surplus of a cash flow a problem
Because the cabs needs to be used within the business to makes even more profit
Why is a cash flow forecast useful
It can help predict problems eg deficits ,
It can help a business apply for a bank loan
It is useful to predict when a business can lag its debts
What are the risks of a business not completing a cash flow forecast
A business will be unable to see whether they can pay its bills
They won’t know if they need to arrange additional finanace
May not be Able yo pay suppliers on time
Why is a cash flow forecast useful for seasonal products
It will help to predict whether the profits will make enough you money during the busy months to smoke up for the quieter months
What are the disadvantages of using a cash flow forecast
It is only a forecast and figures may change eg price of raw materials and selling price
They take most of research to complete and the forecast will need regular updates
