Cash Flow Forecast
- Created by: lottiejackson01
- Created on: 17-03-17 09:43
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- What is a cash flow forecast?
- The prediction of future cash inflows and outflows showing the estimated cash balance at the end of each month.
- Cash Flow Forecast
- What is a cash flow statement?
- The statement is based on actual cash flow data.
- Inflows
- Sales revenue
- Payments by debtors
- A debtor is someone who owes money.
- Loans
- Sales of assets
- Sales of shares
- Benefits
- Allows a business to see when they might need a loan or any other type of finance.
- Able to plan for unexpected bills/payments they may have in the future.
- If positive, the business can use a cash flow forecast to obtain a bank loan.
- Outflows
- Purchase of stock
- Loan payments
- Payment to creditors
- Creditors are people who lend money.
- Utility bills
- Rent and rates
- Drawbacks
- Only a rough estimate, not very accurate.
- Only accounts for a small proportion of the year.
- May not take into account payments that will affect the business in the future.
- Purpose
- Whether there is enough cash available to pay salaries and settle debts on time.
- Calculates the businesses reserves which could be invested in expansion or new equiptment.
- Identifies when shortfalls are likely to happen and surplus funds are likely to become available.
- Formula
- cash flow = inflow - outlfow
- What goes wrong?
- Plenty of orders but not enough cash to buy the supplies needed to provide them.
- The cost of meeting interest payments on money borrowed can exceed available cash.
- Sales fall unexpectedly so businesses cant pay the bills.
- Debtors don't pay their bills leaving a company with no cash.
- An unexpected crisis cases a decline in business.
- Solutions to problems
- Sell assets
- Cut costs
- Arrange an overdraft or a loan
- Extend credit with suppliers
- Reduce credit period to debtors
- Factoring - sell debts
- What is a cash flow statement?
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