Cash Flow Forecasting

Question 1

Why is cash important to a business?

Answer 1

To pay for day-to-day expenses like suppliers, overheads, and employee wages.

Question 2

What happens if a business runs out of cash?

Answer 2

It may fail (insolvency), even if it is profitable on paper.

Question 3

What is insolvency?

Answer 3

When a business cannot pay its debts because it has no cash available.

Question 4

What is the difference between cash and profit?

Answer 4

Cash is the money a business actually has available.

Profit is the money left after all costs have been subtracted from revenue.
A business can be profitable but still run out of cash.

Question 5

What is a cash inflow?

Answer 5

Money coming into the business, e.g. from sales, loans, or investments.

Question 6

What is a cash outflow?

Answer 6

Money going out of the business, e.g. for rent, stock, wages, or bills.

Question 7

What is net cash flow?

Answer 7

Net cash flow = Total inflows − Total outflows

Question 8

What is the opening balance in a cash-flow forecast?

Answer 8

The amount of cash the business has at the start of the month.

Question 9

What is the closing balance in a cash-flow forecast?

Answer 9

Closing balance = Opening balance + Net cash flow

Question 10

How can a cash-flow forecast help a business?

Answer 10

It helps predict cash shortages and surpluses, allowing better planning and decision-making.