Cash Flow Forecasting Flashcards
Why is a cash flow forecast important for a business?
Used to predict when money will come in & out of the business over a period of time
What is the cash flow cycle?
The gap between money coming in & out
What are cash inflows?
The sums of money received by a business
What are cash outflows?
The sums of money paid out by a business
Why can the cash flow cycle be a issue for start-up businesses?
They need money before they’ve made any sales at all
What is working capital?
The money available for its day-to-day running costs
What 2 things that the cash flow cycle depends on?
The type of product
Credit payments
Why does the type of product affect the cash flow cycle?
Because it determines the length of time it takes to produce and how long its held in stock
Why does credit payments affect the cash flow cycle?
Buying on credit means the goods are received but the buyer has an agreed period of time before payment is due.
Who are the people who are owed money called?
Creditors
Who are the people who owe money called?
Debtors
What is the money owed to the business known as?
Receiveables
What is the ideal cash flow situation?
Where there’s a short period of time from the start of production to the sale of goods and where the business is given a longer credit period by its creditors
What are 3 ways businesses can improve cash flow?
Overdrafts
Less stock held
Debt factoring
How can overdrafts improve cash flow?
Can be arranged with banks to borrow money according to its needs
How can less stock being held improve cash flow?
Less cash is tied up in stock
How can reducing the credit time between suppliers and customers help improve cash flow?
Can try get their suppliers a longer credit and customers a shorter credit period.
How can debt factoring help improve cash flow?
Get the cash before customers give incase need to pay suppliers
How can sales and leases help improve cash flow?
Get a lump sum and pay a little of money for lease each month
What do cash flow forecasts show?
The amount of money that managers expect to flow into and out the business over a period of time.
How can managers use cash flow forecasts?
Make sure they always have enough money to pay suppliers and employees
When do businesses show cash flow forecasts to banks?
When trying to get loans
How can cash flow forecasts be used?
To see if a firm isn’t holding too much cash that could be invested instead
How can circumstances change suddenly after forecast has been made?
Costs go up
Machinery breaks
Demand falls
What can a false forecast do to a business?
Could make a business run out of cash
How do you calculate cash flow?
Cash inflows-Cash outflows
How do you calculate closing balance?
Opening balance - net cash flow
