Cash flow forecasting Flashcards
What is cashflow
The money flowing in and out of a business
Why is cashflow important to businesses
It needs to ensure cashflow is positive in order to be able to meet day to day expenses
What is a cash flow forecast
A forward looking statement that tries to predict cash inflows and outflows in the future
What is a cash flow statement
A backward looking statement that shows what happened to cash inflows and outflows
How is a cash flow forecast constructed (inflows)
Owners investment or other sources of finance, cash sales estimated from sales forecast, debtors payments estimated from sales forecast
How is a cash flow forecast constructed (outflows)
Payment of fixed costs, variable costs, unforeseen expenses and payment terms
What does cash inflow show
Cash in from sales and other sources like loans and investments
What does cash outflow show
Cash out from purchases and payments
What is the formula for net cashflow
Cash inflows - cash outflows
What is an opening balance
How much the business has at the start of each month
How is closing balance calculated
Opening balance + net cash flow
How do managers use cash flow forecasts
Identify timing and significance of potential shortfalls, identify corrective action, guideline for cash flow
How do owners use cash flow forecasts
To help secure finance from potential investors or the bank
How do banks use cash flow forecasts
To see how loans and overdrafts will be paid
How do employees and suppliers use cash flow forecasts
To give confidence about short term survival
What are the factors affecting cash flow
Transaction types, timings of cash flows and nature of business
How does timing effect cash inflow
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
What are receivables
When a business is owed money from customers
How does timing effect cash outflows
If outflows are too quick this may cause issues, firms may negotiate longer payments from suppliers to combat this
What are payables
When a business owes money to suppliers
What are the issues with cashflow
Businesses need to be able to pay day to day expenses, inability to meet short term debts, limited cash may result in missed opportunities
What are the causes of cash flow problems
Credit sales, overtrading, internal management, seasonality and unexpected events
How can you improve cash flow
Increase volume of cash inflow, speeding up the timing of inflow, reducing volume of outflows, slowing down timings of outflows
How can you improve cash inflows
Overdrafts, short term loans, debt factoring, cash payments and credit control
How can you improve cash outflows
Delaying payments, stock management, reduce overhead spending
