Timings and Cash Flow Forecasting

Question 1

What is a credit period?

Answer 1

Business don’t receive the money straight way.

Question 2

How does a cash flow forecast predict problems?

Answer 2

• identifies whether a business will have a cash deficit
• predicts if funds will be low so business will have time to make arrangements for a loan or overdraft or reduce its outflow.
• identify if a business will have long-term cash flow problems.

Question 3

How does a cash flow forecast plan a business for success?

Answer 3

• predicts in there will be a cash surplus
• money can be used to make business even more profitable
• money could be reinvested in business or in high-interest saving account.

Question 4

How does a cash flow forecast help a business make decisions?

Answer 4

• identifies whether a business has raised enough start-up capital
• makes it easier for a business to make difficult decisions e.g. they can predict when they will have enough money to buy new equipment.

Question 5

What are the risks of a business not making a cash flow forecast?

Answer 5

• cannot tell if it can pay its bills
• won’t know to apply for a loan or reduce outflows
• if they can’t pay suppliers on time, suppliers may stop producing the product– bankruptcy