2.1.4 planning and cash flow

Question 1

uses of cash flow forecasts

Answer 1

can make comparisons between predicted inflows and outflows and about what happened.
shows the business owner where likely cash surplus and shortages are so they can arrange suitable finance

Question 2

limitations of cash flow forecasts

Answer 2

bias
predictions
updates
mistakes
time

Question 2

bias

Answer 2

a business may overinflated the inflows to make the business look better on paper to attract finance or impress a supplier

Question 3

predictions

Answer 3

a cff cannot take into account weather problems, a supplier closing, or any other event that cannot be foreseen

Question 4

updates

Answer 4

a forecast is a document that needs regular updating or the data becomes inaccurate and stale

Question 5

mistakes

Answer 5

a cff is a tricky document for an inexperienced entrepreneur to produce, so may be inaccurate

Question 6

time

Answer 6

the longer time the cash flow is based over the more likely it is to be inaccurate

Question 7

problems with cash flow forecasts

Answer 7

only a 12 month snapshot which is very short term to make any concrete decisions about the business.
only a forecast - actual sales or expenses might be higher.

Question 8

business plan

Answer 8

a look into the future of the business

Question 9

why do businesses write a business plan

Answer 9

to persuade lenders that the business will make enough profit to be able to pay back interest.
attract potential investors to the business.
give the owners some direction.
to set targets

Question 10

what is included in a business plan

Answer 10

cash flow forecast to show the expected income and expenditure of a business over the coming year