Unit 3 - Business Finance (Cashflow forecasting)

Question 1

Cashflow

Answer 1

Cashflow is the physical cash flowing in and out of the business.

Question 2

Importance of cashflow

Answer 2

• A business cannot survive without cash.

Question 3

Cashflow forecast

Answer 3

The cashflow forecast is made up of three main sections:
- Receipts: This section records any money that the business expects to receive.
- Net In/Out flow: This section shows the difference between the receipts and payments.
- Payments: This section records any money that the business expects to spend.

Question 4

What does a cashflow forecast look like?

Answer 4

A cashflow forecast is a table that summarises the money coming in and going out.
Each month has it’s own column.
Each column has 3 parts:
- Receipts (or inflows) is money coming in
- Payments (or outflows) is money going out
- Net In/Out Flow is the difference between the two (A - B)
Add together all payments to calculate total payments.
Net cashflow = total receipts minus total payments.

Question 5

Golden rules of cashflow

Answer 5

Money is only recorded when cash changes hands. It tells us nothing about profit. A negative closing balance DOES NOT mean that the firm is bankrupt.