Cash Flow Forecast

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  • Created by: izzy
  • Created on: 01-07-12 15:37

Cash Flow Forecasts

These look at all the money coming into and leaving the business, usually over the next 12 months.

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Why produce a cash flow forecast?

  • If you want a loan from the bank, the bank will insist on a cash flow forecast to ensure the firm can pay the money back.
  • It's a good way of anticipating any future money problems before they occur.
  • It's a useful way of asking 'what-if' questions.
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Limitations of a cash flow forecast:

  • Actual figures are likely to be different.
  • The longer the time period, the less accurate the forecast.
  • Some figures the firm has no control over.
  • Price could change.
  • Demand could be affected by external factors.
      • Recessions.
      • New competitors.
      • Fashions and tastes changing.
  • Fixed costs could change.
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When a firm has predicted cash flow problems, what can it do?

  • Try to increase sales through marketing.
  • Increase price. More money will come in, but sales may drop.
  • Change to cheaper suppliers. Although quality may suffer.
  • Reduce other costs.
  • Ask the bank for an overdraft facility.
  • Extend your trade credit by asking your suppliers for longer to pay.
  • Change your business strategy.
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