Cash Flow Forecasting Flashcards
what is cash flow
The cash inflows and outflow over a period of time
What is cash inflow
Sums of money received by a business during a period of time
What is cash outflows
Sum of money paid out by a business during a period of time.
Examples of cash inflows
• Sale of products for cash
• Payments made by debtors
• Borrowing money
• The sale of assets of the business
• Investors (money into business)
Examples of cash outflows
Purchasing goods/materials for cash
Paying wages/salaries/other expenses
Purchasing non-current assets
Repaying loans
Paying creditors of the business
What does the cashflow cycle show
Shows The stages between paying out cash for labour/materials etc.. and receiving cash from the sale of goods.
Define profit
The surplus after total costs have been subtracted from revenue.
Define Insolvency
When a debtor cannot pray the debts they owe
How can profitable businesses run out of cash
- allowing customers too long a credit period
- purchasing too many noncurrent assets at once
- expanding too quickly and keeping a high inventory level
What is a cash flow forecast
Is an estimate of future cash inflows and outflows of a business , usually on a month by month basis .
Then shows the expected cash balance at the end of each month.
What will cash flow forecast tell the manager :
Future cash position of the business.
How much cash is available for paying bills/repaying loans/buying fixed assets .
How much cash the bank might need t to lend to the business in order to avoid insolvency.
Whether the business is holding too much cash which could be put to a more profitable use.
Uses of cash flow forecast
Starting up a business
Running a existing business
Keeping the bank manager informed
Managing cash flow
What is Net cash flow
The difference , each month , between inflows and outflows
What is closing cash/bank balance
Amount of cash held by the business at the end of each month .
And becomes the next months opening cash balance .
Opening cash/bank balance
Amount of cash held by the business at the start of the month
Ways to overcome short term cash flow problem
Increasing banks loans.
Delay payments to suppliers.
Asking debtors to pay more quicker.
Delay/cancel purchases of capital equipment.
How to overcome a long term cash flow problem
Attracting new investors
Cutting down costs & increasing efficiency
Developing new products
