Cashflow Forecast
Unit 5.2
What is meant by cash flow?
• Cash flow is the flow of cash in and out of a
business, over a period of time.
• Cash inflows are the sum of money received by a
business over a period of time while cash outflows
is the exact opposite.
Cash inflow
• How can cash flow into a business?
• By the sale of goods for cash
• Through payments made by debtors
• By borrowing money from external sources ( e.g.
Loans)
• Through the sale of assets if the business
• From investors
Cash Outflow
• How can cash flow out of a business?
• By purchasing goods or materials for cash
• By the payment of wages/ salaries to the
employees
• By purchasing fixed assets
• By repaying loans
• By paying creditors of the business
Cashflow Forecast
Cash Flow Forecasts
• A cash flow forecast is an estimate of future cash
inflows and outflows of a business, usually on a
month by month basis. This will then show the
expected cash balance at the end of each month.
Uses of cash flow forecast
• There are many uses of cash flow forecasts, they are:
• Starting up a business
• Keeping the bank manager informed
• Running an existing business
• Managing cash flow
Some common terms
• Opening bank balance: is the amount of cash held by the business at
the start of the month
• Net cash flow: is the difference, each, month between the inflows and
outflows
• Closing cash balance: is the amount of cash held by business at the
end of the month, this becomes the next month opening bank
balance.
What cash flow is not!
• Cash and profit are two very different things.
• Profit is the surplus after total costs have been subtracted from sales
revenue and cash flow is not.
How to solve cash flow problems
• Arrange with your bank to borrow money over the time when you
have negative cash flow
• Reduce or delay some of your planned expenses
• Increase your forecasted cash income in some way( e.g. a part time
job.)
• Delay paying for some of your expenses until cash is available