Cash flow forecasts Flashcards
What are cash flow forecasts
Estimating size/timing of cash inflow/outflow within a business
Shows the predicted net cash flow, opening and closing balance at set points in time(usually monthly)
Examples of cash inflows
Cash and credit sales Loans received Capital introduced e.g share capital or venture capital Sale of assets Interest received from the bank
Examples of cash outflow
Cash and credit purchases Paying expenses e.g rent rates salaries wages and utilities Purchase of assets VAT Interest paid to banks
Factors affecting cash flow
Transaction types(cash vs credit) Purchases(cash vs credit) Payment terms Timing of cash flows(seasonal sales) Timing of payments in and out Nature of business
Cash flow can be improved by doing what
Increasing the volume of cash inflow or speeding up the timing of cash inflow
Reducing volume of cash outflow or slowing down the timing of cash outflow
Ways to speed up cash inflow
Offering discounts for early payment/penalty for late repayments
Credit control
Trade receivables
What are trade receivables
Credit sales made by the business that havent been received yet
Ways to slow down cash outflow
Longer payment terms with suppliers
What are trade payables
Current liability that represents short term payments businesses need to make
A business will use cash flow forecasts for
Planning e.g when there may be a cash short fall
Monitoring e.g is there enough money at the end of the month for day to day expenses
Control
Target setting
Uses of cash flow forecast
Identify timing and significance of any shortfalls
Identify possible corrective action
Confidence about short term survival
Guide to measure actual cash flow
Limitations of cash flow forecasts
May be inaccurate
External environment can affect predictions
Demand may be over or under estimated
