cash flow statements and forecasts

• cash


  - does not always refer to notes and coins

  - refers to liquid assets -more liquid version of current assets ( easier and faster to turn into money
• cash inflows

  - amount of money entering the business's bank account

  - mostly from payments by customers
• other possible sources of income


  - bank loan

  - selling assets
• cash outflows

  - amount of money leaving a business's bank account
• examples of cash outflows

  - staff wages

  - utilities

  - raw materials

  - insurance

  - interest on loans

  - dividends ( paid to shareholders from the business' profit)
• cash flow statement


  - shows ACTUAL cash inflows and outflows over a period of 12 months

  - produced by limited companies.
• cash flow forecast

  - financial document that calculates the cash flow position of an enterprise

  - shows the ANTICIPATED cash inflows and cash outflows and the net cash flow
• Net cash flow


  Cash inflows(receipts) - cash outflows(payments) = Net cash flow
• Closing balance

  Net cash flow + opening balance = closing balance
• cash flow forecast image

  
• receipts


  total flow of cash into the business
• what cant you have if you dont have an overdraft?

  a negative closing balance
• what does a small positive closing balance mean?

  there is money available for the business to pay its bills
• what does a large positive closing balance mean?

  money available for investment or expansion
• what does a small negative closing balance mean?

  my need to borrow for a short time
• what does a large negative closing balance mean?

  the enterprise may have to colse unless action is taken
• what timings does cash flow forecasting tell us?

  (benefits)

  - timings of all expected revenue and expenses
• What does a cash flow forecast warn you about?

  (benefits)

  owner has a warning if theres a long term problem
• what can the owner do if they receive warnings about a potential problem?

  (benefits)

  - costs reduced

  - revenue increased
• what can reminders be set for?

  (benefits)

  any debts that are overdue/owed
• What can be negotiated?

  (benefits)

  payment dates
• if theres likely to be a deficit, what does the owner have time to take action to do?

  if theres likely to be a deficit, the owner has time to take actions to delay payments or obtain a temporary loan
• what will the business have to cut to improve cash flow?

  cut costs
• what will the business have to increase to improve cash flow?

  increase revenue
• how will the enterprise increase revenue to improve cash flow?

  raise prices or offer promotion (will have to sell more products)
• what does the business reduce to improve cash flow?

  reduce stock levels
• what will have to be delayed to improve cash flow?


  delay payments
• what is the time customers have to pay in called?

  credit periods
• how can credit periods be used to improve cash flow?

  reducing credit periods -> customers pay faster -> revenue faster
• what bonuses can be offered to improve cash flow?

  making an early payment bonus - customers get discounts if they pay early
• what can be sold to improve cash flow?

  sell any unused assets
• what can be managed to improve cash flow?

  manage debts - invest time into chasing debtors
• what short term cash solutions can be used to improve cash flow?

  - bank overdraft

  - trade credit
• you should _____ _____ plans to improve cash flow?

  delay expansion plans
• what might not be received/late if a business does not use cash flow statements?

  revenues
• what might be delayed if a business does not use a cash flow statement?

  payments
• who might be frustrated if a business delays payments as a result of not using cash flow statements? and what will this lead to?

  supplier may become frustrated and could refuse to trade with the enterprise in the future
• what might a business have to pay for as a result of not using cash flow statement?

  high interest charges on an unauthorised overdraft or emergency loans
• what may the enterprise become if it doesnt use a cash flow statement?

  insolvent
• how can stock be a factor influencing poor cash flow?

  if the business is overstocked they will need to handle storage costs.

  e.g. fridges to store perishable products -> electrical costs

  - or warehouses-> security system