cash flow forecasting

• What is often said about cash in business?

  Cash is king.
• Why is cash considered the most important asset for a business in the short term?

  Without cash, employees and suppliers cannot be paid, halting business operations.
• What does a cash flow forecast indicate?

  A cash flow forecast predicts how much cash will be available or needed in a business.
• What are the three parts that make up a cash flow forecast?

  • Revenue/income
  • Expenses/outgoings
  • Balances
• What does a forecast cash flow statement show?

  It shows the expected flows of cash into and out of a business over a trading period.
• What type of business is Good Wood Trading?

  Good Wood Trading is a sole trader manufacturing wooden garden furniture.
• How does Good Wood Trading sell its products?

  Good Wood sells its products through gardening exhibitions and local garden centres on a credit basis.
• What is included in the predicted cash flow statement for Good Wood for the first six months?


  • Cash sales
  • Debtor payments
  • Total revenue
  • Raw materials
  • Wages
  • Loan repayments
  • Rates
  • Electricity
  • Travelling
  • Sundries
  • Exhibition charges
  • Total expenses
  • Net cash flow
  • Opening balance
  • Closing balance
• What is the total revenue for Good Wood in January?

  £600
• What are cash sales?

  Cash sales are sales made with immediate payment available for use by the business.
• What are debtor payments?

  Debtor payments occur when goods are sold on credit and payment is received later.
• How is total revenue defined?

  Total revenue is the sum of all payments received by a business within a time period.
• What are the common types of expenses in a business?

  • Raw materials
  • Wages
  • Loan repayments
  • Rates
  • Electricity
  • Travelling
  • Sundries
  • Exhibition charges
• How is total expenses calculated for Good Wood in January?

  Total expenses for January is predicted to be £2450.
• How is net cash flow calculated?

  Net cash flow is calculated by taking total expenses away from total revenue.
• What is the net cash flow for Good Wood in January?

  –£1850
• How do you find the closing balance in a cash flow forecast?

  The closing balance is found by adding or deducting net cash flow from the opening balance.
• What is the closing balance for Good Wood in January?

  –£1100
• What are typical reasons for cash flow forecast problems?

  • Sales not at expected levels
  • Increased/decreased competition
  • Economic growth/decline
  • Changing consumer spending patterns
  • Government influences
  • Increased costs
  • Poor initial predictions
  • Late payments
  • Poor budgeting
• Why is it important for businesses to monitor cash flow?

  Monitoring cash flow allows businesses to take action before a real crisis arises.
• What are some solutions to a predicted cash shortage?

  • Increase revenue
  • Reduce costs
  • Delay payment
  • Seek extra funding
• What is liquidity in a business context?

  Liquidity is a measure of the availability of working capital to meet immediate expenditure demands.
• What can managers do if there is a predicted cash shortage?

  Managers can increase revenue, reduce costs, delay payments, or seek extra funding.
• What are the benefits of preparing a cash flow forecast?

  • Provides a clear idea of business performance
  • Identifies times when additional funding may be needed
  • Helps identify and remedy inconsistencies in performance
  • Allows planning for large positive cash flows
• What are the limitations of using a cash flow forecast?

  • Takes management time
  • Requires accuracy to be valuable
  • Less accurate over longer timescales
  • Inflation can impact accuracy
  • Needs ongoing monitoring
• What is the difference between a cash flow statement and a cash flow forecast?

  A cash flow statement shows actual cash flows, while a cash flow forecast predicts future cash flows.
• Why can cash flow forecasts sometimes be just rough estimates?

  They can be rough estimates due to changing economic conditions and lack of historical data.
• What are some methods of solving short-term cash flow problems?

  Methods include increasing revenue, reducing costs, delaying payments, and seeking extra funding.
• How can a business improve its cash flow in the long term?

  By implementing better budgeting, improving sales strategies, and managing expenses effectively.
• What is the significance of spending time on producing cash flow forecasts?

  It helps businesses anticipate cash flow needs and avoid financial crises.