738746
Cash Flow Forecasting
- Cash Flow = The movement of cash into and out of a
business over a period of time
- The timing of and relationship between
cash inflows and cash outflows can be
crucial to the survival of a business
- The timing of and relationship between
cash inflows and cash outflows can be
crucial to the survival of a business
- Cash inflows = are the receipt of
cash into a business
- Examples include : Sales of
goods, payment by debtor, loans
received
- Examples include : Sales of
goods, payment by debtor, loans
received
- Cash outflows = are the
transfer of cash from a
business
- Examples include : buying
materials, paying expenses,
repaying loans, buying capital
equipment
- Examples include : buying
materials, paying expenses,
repaying loans, buying capital
equipment
- Net monthly cash flow = the balance of a
month's total cash inflow in relation to the
month's total cash outflows
- Cash inflows
- Cash outflows
- Cash inflows
- Cash flow problems = A business with a
negative net monthly cash flow struggle to
meet day to day expenditure
- Cash flow forecast = the process of
estimating the size and timing of cash
inflows and outflows
- Cash inflows = cash in from sales
- Cash sales
estimated from
sales forecast
- Difficult for new businesses, may be
over or under estimated
- To a certain extent, it depends upon
the scale and accuracy of research
- Difficult for new businesses, may be
over or under estimated
- Debtor payments
estimated from sales
forecast
- Determined by credit
terms offered to
customers and their
reliability
- Determined by credit
terms offered to
customers and their
reliability
- Cash sales
estimated from
sales forecast
- Cash outflows = cash out for purchases and payments
- Payment of fixed costs
- These should be easy to
estimate on a month to
month basis
- These should be easy to
estimate on a month to
month basis
- Payment of variable costs
- If sales are difficult to forecast
accurately then costs are as
well
- Suppliers may
change prices or
payment terms
- If sales are difficult to forecast
accurately then costs are as
well
- Payment of fixed costs
- Net cash flow =
The net result of
cash inflows and
cash outflows
each month
- Calculated as...CASH INFLOWS - CASH OUTFLOWS
- Calculated as...CASH INFLOWS - CASH OUTFLOWS
- Opening balance = How much the business has at the start of each month
- The closing balance for one
month becomes the opening
balance for the next
- The closing balance for one
month becomes the opening
balance for the next
- Closing balance = How much the business has at the end of each month
- Calculated as...OPENING
BALANCE + NET CASH
FLOW
- Calculated as...OPENING
BALANCE + NET CASH
FLOW
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