cash flow forecasting Flashcards
(14 cards)
What is meant by cashflow?
cash flow is the movement of money into and out of a business, including cash inflows and outflows
what is a cash flow forecast?
a financial tool that estimates a business’s future cash inflows and outflows over a specific time period
why do businesses create cash flow forecasts?
- plan for cash shortages
- manage spending
- make better financial decisions
how is net cash flow calculated?
Net cash flow = cash inflows - cash outflows
how is closing balance calculated in a cash flow forecast?
closing balance = opening balance + net cash flow
what does a positive net cash flow indicate?
the business is receiving more money than it is spending
what does a negative cash flow indicate?
that the business is spending more than it is receiving
what is the impact of cash flow forecasts on business decision-making?
- anticipate financial problems
- plan investment
- manage debt
- reassure investors
what are common causes of cash flow problems?
- low sales
- late customer payments
- excessive stock
- poor planning
what are strategies to improve cash flow?
- cut costs
- delay payments
- reduce stock
- increase sales
- short term finance
how can a business use debt factoring to improve their cash flow?
- selling invoices to a factoring company
- business receives immediate cash rather than waiting for customer payments
what are the benefits of cashflow forecasts?
- help identify cash-flow issues
- support planning
- guide decisions
what are the limitations of cash flow forecasting?
- relies on estimates and assumptions which may change
- unforeseen events
- market changes
why must cash flow forecasts be regularly reviewed?
- adjust for changes in revenue and expenses
- changing market conditions
- ensure accuracy
