Cash flow forecast (CFF)

• A cash flow forecast is a prediction of a businesses future inflows + outflows over the next 12 months (expenditures + expected income)
• Cash flow is important to show liquidity, to show a potential investor such as the bank that the interest rates can be afforded, to obtain a better picture of how cash is circulated around the business, insight into spenditures
• A cash flow forecast allows a business to make comparisons between predictions and actual figures, aspect of financial planning for the future, shows the business where cash surplus/ shortages are, predict the next 12 months' cash flow
• Advantages of a CFF: Make financial adaptations within the business, gain external finance = allows the business to expand it's activity, helps prepare for seasonal fluctuations in cash flows
• Disadvantages of a CFF: The figures are only a prediction and may not be close to what actually happens due to unforeseen expenditures or reduced profits, needs regular updating to be useful, overestimations may occur dependant on previous data, Only a years worth of predictions, start ups are unable to use a CFF from a previous year to predict future cash flow