Cash flow forecasting

Question 1

What is cashflow

Answer 1

The money flowing in and out of a business

Question 2

Why is cashflow important to businesses

Answer 2

It needs to ensure cashflow is positive in order to be able to meet day to day expenses

Question 3

What is a cash flow forecast

Answer 3

A forward looking statement that tries to predict cash inflows and outflows in the future

Question 4

What is a cash flow statement

Answer 4

A backward looking statement that shows what happened to cash inflows and outflows

Question 5

How is a cash flow forecast constructed (inflows)

Answer 5

Owners investment or other sources of finance, cash sales estimated from sales forecast, debtors payments estimated from sales forecast

Question 6

How is a cash flow forecast constructed (outflows)

Answer 6

Payment of fixed costs, variable costs, unforeseen expenses and payment terms

Question 7

What does cash inflow show

Answer 7

Cash in from sales and other sources like loans and investments

Question 8

What does cash outflow show

Answer 8

Cash out from purchases and payments

Question 9

What is the formula for net cashflow

Answer 9

Cash inflows - cash outflows

Question 10

What is an opening balance

Answer 10

How much the business has at the start of each month

Question 11

How is closing balance calculated

Answer 11

Opening balance + net cash flow

Question 12

How do managers use cash flow forecasts

Answer 12

Identify timing and significance of potential shortfalls, identify corrective action, guideline for cash flow

Question 13

How do owners use cash flow forecasts

Answer 13

To help secure finance from potential investors or the bank

Question 14

How do banks use cash flow forecasts

Answer 14

To see how loans and overdrafts will be paid

Question 15

How do employees and suppliers use cash flow forecasts

Answer 15

To give confidence about short term survival

Question 16

What are the factors affecting cash flow

Answer 16

Transaction types, timings of cash flows and nature of business

Question 17

How does timing effect cash inflow

Answer 17

If they are slow it can create cash flow issues, to speed inflows up firms may offer discounts for early payments or penalties for late payments

Question 18

What are receivables

Answer 18

When a business is owed money from customers

Question 19

How does timing effect cash outflows

Answer 19

If outflows are too quick this may cause issues, firms may negotiate longer payments from suppliers to combat this

Question 20

What are payables

Answer 20

When a business owes money to suppliers

Question 21

What are the issues with cashflow

Answer 21

Businesses need to be able to pay day to day expenses, inability to meet short term debts, limited cash may result in missed opportunities

Question 22

What are the causes of cash flow problems

Answer 22

Credit sales, overtrading, internal management, seasonality and unexpected events

Question 23

How can you improve cash flow

Answer 23

Increase volume of cash inflow, speeding up the timing of inflow, reducing volume of outflows, slowing down timings of outflows

Question 24

How can you improve cash inflows

Answer 24

Overdrafts, short term loans, debt factoring, cash payments and credit control

Question 25

How can you improve cash outflows

Answer 25

Delaying payments, stock management, reduce overhead spending