cash flow forecasts Flashcards
Why do businesses use cash flow forecasts?
Improve stability
Can predict if the business will survive long term
Anticipate cash needs
Help prevent cash deficits
What does a cash flow forecast list?
Its cash inflows (receipts) and outflows (payments) over a future period of time
What’s the difference between a cash flow forecast and statement?
A forecast is a prediction while a statement is the actual cash coming in and out of the business.
What are advantages to cash flow forecasts?
- Identifying the timing of cash surplus and deficit
- Supporting applications for finance
- Enhancing the planning process
- Monitoring cash flow
What are some limitations of cash flow forecasts?
- Short term focus
- Time consuming
- Inaccurate sales projections
- Uncertainty with receipts
- External factors
What does solvency mean?
The degree of which a business is able to meet its debts when they fall due.
What does net cash flow mean?
The difference between the cash inflow and outflow of a business in a given time period.
What is a cash flow forecast?
The prediction of all expected receipts and expenses of a business over a future time period which shows the expected cash balance at the end of each month.
What is one of the major causes of small business failure?
Poor cashflow management
What could companies do to make sure that sales data is accurate?
Use historical data for research
Why are the outflows easier for the business to forecast?
As these costs are already known by the business
Some external factors which could affect the forecast accuracy:
Consumer trends
Unemployment
Competitors
Interest rates
Unforeseen circumstances
If stock is bought on credit when is the transaction entered on the forecast?
It is entered on the date which the money has to be paid to the supplier instead of the date of the sale.
If goods are sold on credit where do you put the receipt onto the forecast?
On the date the money is paid to your company and not the sales date.
Difference between cash flow and profit?
Cash flow shows how much money moves in and out of your business, while profit illustrates how much money is left over after you’ve paid all your expenses.
