Cash flow forecasting


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Cash flow forecasting
A cash flow forecast is an estimate of the expected cash and cash
over a given period of time. The forecast then shows the effect of each month's cash flows upon the
firms' cash balance. The cash flow forecast will show how much cash is expected to be available each
month. If the cash flow is the company has insufficient funds to pay its outflows and
may need to use a facility. When a business makes an application for a ,
banks will generally request a cash flow forecast as this will provide an indication of whether the
business is likely to have enough cash to a) survive and b) repay the loan.
Negative Overdraft Outflows Loan Inflows
In May 2008 the `silver jet' start-up airline collapsed when it did not have enough cash to pay its bills.
Outline two ways cash flow forecasting might have helped the airline?
1. (Hint) write about how the cash flow forecast is a way of keeping an eye on the cash inflows,
so to make sure that its covering the outflows, and maybe even leaving profit
2. (Hint) write about how the cash flow forecast enables the business to analyse its current
state, so that the business knows whether it's edging towards failure, which it did.
Explain why cash flow forecasting would be especially helpful for a young entrepreneur, attempting
to start her own business.
1. You could start by explaining that it would allow the entrepreneur to be in more control of
the financial aspects/state of the business
True or false:
Completing a cash flow forecast ensure success?
Cash flow forecasts are based on estimates?
Cash flow forecasting estimates monthly profit?
An accurate cash flow forecast can be a useful business tool?
(F, T, F, T)
All figures Jan Feb Mar Apr May Jun Jul
in £'s
Cash in 100,000 (50,000) (100,000 (175,000 (150,000 (75,000) 0
start ) ) )
Cash in 0 0 0 100,000 150,000 150,000 150,000
Cash out 150,000 50,000 75,000 75,000 75,000 75,000 75,000
Net cash 150,000 (50,000) (75,000) 25,000 75,000 75,000 75,000
Cumulativ (50,000) (100,000 (175,000 (150,000 (75,000) 0 75,000
e cash ) ) )
1. Outline two ways that Two Jags could have estimated its cash inflows
Could say: By looking at historical data
Could say: By using the Delphi method
2. How could Two Jags benefit from more accurately forecasting its cash inflows and cash
Could say: So they can more accurately predict profit
Could say: So they can ensure their business doesn't make a loss


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