Cash Flow Forecasting

Question 1

Why is a cash flow forecast important for a business?

Answer 1

Used to predict when money will come in & out of the business over a period of time

Question 2

What is the cash flow cycle?

Answer 2

The gap between money coming in & out

Question 3

What are cash inflows?

Answer 3

The sums of money received by a business

Question 4

What are cash outflows?

Answer 4

The sums of money paid out by a business

Question 5

Why can the cash flow cycle be a issue for start-up businesses?

Answer 5

They need money before they’ve made any sales at all

Question 6

What is working capital?

Answer 6

The money available for its day-to-day running costs

Question 7

What 2 things that the cash flow cycle depends on?

Answer 7

The type of product
Credit payments

Question 8

Why does the type of product affect the cash flow cycle?

Answer 8

Because it determines the length of time it takes to produce and how long its held in stock

Question 9

Why does credit payments affect the cash flow cycle?

Answer 9

Buying on credit means the goods are received but the buyer has an agreed period of time before payment is due.

Question 10

Who are the people who are owed money called?

Answer 10

Creditors

Question 11

Who are the people who owe money called?

Answer 11

Debtors

Question 12

What is the money owed to the business known as?

Answer 12

Receiveables

Question 13

What is the ideal cash flow situation?

Answer 13

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

Question 14

What are 3 ways businesses can improve cash flow?

Answer 14

Overdrafts
Less stock held
Debt factoring

Question 15

How can overdrafts improve cash flow?

Answer 15

Can be arranged with banks to borrow money according to its needs

Question 16

How can less stock being held improve cash flow?

Answer 16

Less cash is tied up in stock

Question 17

How can reducing the credit time between suppliers and customers help improve cash flow?

Answer 17

Can try get their suppliers a longer credit and customers a shorter credit period.

Question 18

How can debt factoring help improve cash flow?

Answer 18

Get the cash before customers give incase need to pay suppliers

Question 19

How can sales and leases help improve cash flow?

Answer 19

Get a lump sum and pay a little of money for lease each month

Question 20

What do cash flow forecasts show?

Answer 20

The amount of money that managers expect to flow into and out the business over a period of time.

Question 21

How can managers use cash flow forecasts?

Answer 21

Make sure they always have enough money to pay suppliers and employees

Question 22

When do businesses show cash flow forecasts to banks?

Answer 22

When trying to get loans

Question 23

How can cash flow forecasts be used?

Answer 23

To see if a firm isn’t holding too much cash that could be invested instead

Question 24

How can circumstances change suddenly after forecast has been made?

Answer 24

Costs go up
Machinery breaks
Demand falls

Question 25

What can a false forecast do to a business?

Answer 25

Could make a business run out of cash

Question 26

How do you calculate cash flow?

Answer 26

Cash inflows-Cash outflows

Question 27

How do you calculate closing balance?

Answer 27

Opening balance - net cash flow