Cash Flow forecasting Flashcards
What is a cash flow
A cash flow is the cash that flows into and out of the business over a period of time.
What is a cash flow forecast
A cash flow forecast is form of budget, It will show when cash is expected to flow in and out of a business
What are inflows give examples
Inflows is the money received from customers and other forces
Example of inflows
Sales of products, Capital from the owners, bank loan, grants
What are outflows give examples
Outflows is money paid to suppliers
Payment to suppliers, Rent & rates, Wages salaries, Power, advertising.
What are cash flow problems and give reasons for this
A cash flow problem is when a business does not have enough cash to pay its liabilities
The causes of a cash flow problem are, Low profits or losses, over investment in capacity (equipment not used), Too much stock, seasonal demand.
How to improve cash flow problems
Raise cash internally, cut staff wages, Increase prices, Find cheaper supplier
Raise cash externally, get a bank loan, Find cheaper leasing contract
What are the advantages of a cash flow forecast
Identifies the timing of cash shortages and surpluses
Enhances the planning process – guides the firm
towards taking appropriate action.
supports attempts to raise finance.
What are the disadvantages of a cash flow forecast
Sales can be lower than expected
costs are overlooked
customers not paying on time
Costs higher than expected.
Certain cost not included
Uses of cashflow to owners/shareholders
They will be able to see whether the business is likely to be in a positive or negative cash flow situation
They can use the cash flow to make key business decisions
Gives shareholders security that the business is financially stable and worth investing in
Impacts of cash flow forecast on managers
Cash flow forecasts make managers interested as
To see whether the business is successful, which will impact on job security.
Also could business afford salary increase and other actions
Has their management been effective?
Impacts of cash flow forecast on employees
May want to know the cash flow position of a business to see if their job is secure
Impacts of cash flow forecast on banks
Banks will use cash flow forecasts to decide whether they should lend to a business, how much they should lend and over what period of time
Impacts of cash flow forecast on Suppliers
May want to know if a business is in a financially secure position before offering trade credit
Suppliers may also want to know how much a business regularly spends on supplies for their business
