Cash Flow Forecasts

Question 1

Cash outflow

Answer 1

The money going out of a business.

Question 2

Net cash flow

Answer 2

The differrence between cash inflows and cash outflows.

Question 3

Advantages: Identifying cash shortages

Answer 3

A forecast can help to identify in advance when a business might need to borrow cash. The forecast clearly shows how much cash is left at the end of the month. This will help to identify when, or if, a bank overdraftwill be needed.

Question 4

Advantage: Supporting applications for funding.

Answer 4

When trying to raise finance, lenders often insist that businesses support their applications with a cash flow forecast. This will help show the future outlook for the business.

Question 5

Monitoring cash flow

Answer 5

A business should compare the predicted figures in the cash flow forecast with those that actually occur. By doing this it can find out where problems have occurred. It could then try to find out why differences have occurred.

Question 6

Help when planning the business

Answer 6

Careful planning in business is important. It helps to clarify aims and improve performance. Producing a cash flow forecast is a key part of the planning process.

Question 7

Liquid asset

Answer 7

An asset which is easily changed into cash

Question 8

Cash inflow

Answer 8

The money coming into a business.