Cash flow forecasting Flashcards
(15 cards)
What are cash flow forecasts?
A cash flow forecast identifies all the money that will be coming in (inflows) and going out (outflows) of a business over a period of time.
What are cash flow forecasts?
It is a way of predicting if a business will have enough money to pay its debts.
What are cash flow forecasts?
The forecast should be updated if there are any unexpected cash inflows or outflows so that the business can predict any problems.
What are cash inflows?
Cash inflows include all the money that a business receives. Inflows can be regular or irregular.
Inflow examples.
Sale of products, interest on savings, borrowed money (loans), sale of assets (old machinery).
What is a regular inflow?
Regular inflows are money that a business receives on a regular basis, such as monthly sales or annual interest.
What is an irregular inflow?
Irregular inflows, like loans or the sale assets, don’t happen all the time.
What are cash outflows?
‘Cash outflows’ is another way of saying ‘all the money that leaves a business’. Cash outflows can be regular or irregular.
Outflow examples.
Payments for stock or raw materials, wages and bills, payments for equipment, wages and bills, loan repayments.
What is a regular inflow?
Regular outflows (wages, bills, loan repayments, and buying stock) can be predicted.
What is an irregular outflow?
Irregular outflows, like repairs or new equipment, are harder to predict. Businesses should set money aside for irregular outflows when making a cash flow forecast to avoid any problems.
Improving cash flow.
All businesses need to have enough money to cover the cost of their outflows.
How to improve cash flow?
Encourage customers to pay with cash and straight away. This means the business will receive money quicker.
How to improve cash flow?
Get a credit period with suppliers. This means the business will have time to receive payment before it needs to pay its suppliers.
How to improve cash flow?
Sell more product. This is only a short-term solution. Eventually, the business will run out of products and will have to start paying out money for more.
