Cash flow forecasting

cash flow forecasting notes

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  • Created on: 15-05-11 20:25
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UNIT 1 ­ Planning & financing a business
Financial planning Revision notes
USING CASH-FLOW FORECASTING
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
goods/service
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
Consultants
The cash flow forecast itself
Problems in cash flow forecasting
Changes in economy
Changes in consumer taste
Inaccurate market research
Competition
Uncertainty
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

Comments

davidsalter

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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