Cash flow forecasting

cash flow forecasting notes

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UNIT 1 ­ Planning & financing a business
Financial planning Revision notes
The nature of cash flow:
Cash flow: The amounts of money into & out of a business over a period
Page | 1 of time.
Below is the pattern of inflows (money coming into business) &
outflows (money going out).
Cash flow cycle:
A. Holding of cash
in the business
£ Outflows of cash to buy or hire
Inflows of cash in return for sale factors of production (land, labour,
of good and/or service capital & enterprise)
B. Use of factors of
production to make
Cash leaves the business between A & B and than flows back into
business between B & A
There is a delay between outflows of cash & inflows of cash
This means the nature of business activity that a typical business will
suffer cash flow problems
The extent of cash flow problem will depend on:
The amount of cash held at the beginning of the cash flow cycle
The length of time required to convert inputs into outputs
Credit payments
Cash flow statement: A description of how cash flowed into &
out of business during a period of time.
Cash-flow forecasting: The process of estimating the expected
cash inflows & outflows over a period of time.

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UNIT 1 ­ Planning & financing a business
Financial planning Revision notes
Study similar businesses e.g.
Sources for cash-flow competitors
forecasting: Establishing the level of
resources needed
Previous cash flow forecast
Page | 2 Banks
Cash flow statements
Consumer research
The cash flow forecast itself
Problems in cash flow forecasting
Changes in economy
Changes in consumer taste
Inaccurate market research
Structure of a cash flow forecast:
Cash inflows: Income from sales, sales of assets, borrowings.…read more

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UNIT 1 ­ Planning & financing a business
Financial planning Revision notes
Constructing a cash flow forecast
Page | 3
Why businesses construct a cash flow
To identify potential cash-flow problems in advance
To guide the firm towards appropriate action
To make sure that there is sufficient cash available to pay suppliers &
creditors & to make other payments
To provide evidence in support of a request for financial assistance
e.g.…read more



This is a 4 sheet summary on cash flow forecasting that covers the basics and includes a test. It could be used for revising or adapting for your own revision purposes.

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