Unit 2.6

Question 1

Define Cash Flow

Answer 1

Cash Flow is money coming in and out of the business

Question 2

What is Cash Flow Forecast

Answer 2

A prediction of inflow and outflow over a period of time

Question 3

Importance of Cash Flow Forecast for a business

Answer 3

It sets targets for business=keeps staff motivated ,increased productivity

Business can reflect upon their cash flow forecast vs their actual figures= improve decision making and focus on areas not performing well

Question 4

Consequences of forecasting incorrectly

Answer 4

Business may need loans/overdraft to cover their shortage or negative cash flow, which may cause further liquidity problem

The Business may have to sell some of their current or non current assets to cover cash deficit, which may impact on productivity

If cash flow targets are not met , it may affect the demotivation for their workforce, which may affect productivity

Question 5

Methods to improve cash flow interest

Answer 5

Increasing sales by charging a higher price

sourcing a new supplier(to reduce payments)
cutting expenses to reduce payments

increase promotion( build awareness and bring in more sales)