2.1.5 cash flow forecasts

Question 1

what is a cash flow forecast

Answer 1

a prediction of the cash inflows and cash outflows for a business over a specific period of time.

Question 2

causes of cash flow problems

Answer 2

overtrading

allowing too much trade credit to customers

inaccurate management

unforeseen costs

Question 3

benefits of forecasting

Answer 3

support an application for lending

support the budgeting process

identify any potential cash flow crisis

Question 4

limitations of forecasting

Answer 4

some figures will be based on estimates

variables are constantly changing

they focus on only cash and don’t consider other variables such as probability or productivity

Question 5

what are cash inflows

Answer 5

all sources of cash entering the business, including sales revenue, loans, investments, and other income.

Question 6

what are cash outflows

Answer 6

all cash payments made by the business, including operating expenses, salaries, rent, and loan repayments.

Question 7

what is net cash flow

Answer 7

The difference between cash inflows and cash outflows over a specific period.

Question 8

what is the net cash flow formula

Answer 8

Net Cash Flow = Total Cash Inflows - Total Cash Outflows.

Question 9

what is the opening balance

Answer 9

The opening balance is the cash available at the start of the period

Question 10

what is the closing balance

Answer 10

the closing balance is the cash available at the end of the period after accounting for net cash flow.

Question 11

how do you create a cash flow forecast

Answer 11

Gather Historical Data: Use past cash flow data to inform future projections.

Estimate Cash Inflows: Predict future sales and other income sources based on market analysis.

Estimate Cash Outflows: Identify all expected expenses and payments for the forecast period.

Calculate Net Cash Flow: Determine the net cash flow for each period.

Review and Adjust: Regularly review the forecast and adjust as necessary based on actual performance and changing conditions.

Question 12

what is cash

Answer 12

the physical currency

the liquid asset that can be used immediately for transactions.

Question 13

what is cash flow

Answer 13

movement of cash in and out a business over a specific period

Question 14

whats the net cash flow formula

Answer 14

net cash flow= cash inflows - cash outflows

Question 15

what is the closing balance formula

Answer 15

movement of cash in and out a business over a specific period of tune

Question 16

how to improve cash flow

Answer 16

• reduce excess inventory to free up cash
• extend payment times with suppliers
• cut unnecessary expenses
• cut waste
• use just in time stock control
• control/ cut expenses