Cash flow forecastingWhat is Cash?nCash is the physical asset in your pockets!nProfit is a figure indicating how much a company has left after costs have been taken away does not always mean you have paid money out/or collected it in. Working Lunch Video Questions nWhat is the legislation has been introduced by the Government supposed to do?nWhat are the normal credit arrangements?nWhat are the new rules on payments?nWhat are the problems with the new rules?Cash flow forecastingnCash flow is the inflows and outflows of cash of a businessnA cash flow forecast is a forecast of inflows and outflows over timenThe cash flow forecast therefore shows how much cash a business has at its disposal at any time within the period of the forecastThe Cash Flow Idea Cash Coming into the Business (Cash Inflows)Cash Going out of the Business (Cash outflows)Whats Left?Cash Flow Forecasting nUniversity ExampleCash flow forecastingnCash is used to pay items of expenditure (including capital purchases, loan repayments etcnIf the cash flow forecast indicates that there will be a short-fall of cash at any time, the business can make arrangements to obtain additional inflows such as an overdraft, loan or other appropriate source of financeCash flow forecasting (the difficult bit!)nIn a cash flow forecast items are recorded in the months the money will be actually spent or received, and not in the month the goods or services will be sold or received; therefore goods sold in January on one months trade credit will be recorded in February, when payment for the goods is expectedBirchfield Cash Flow nBirchfield InteractiveCash Flow Drag and DropnDrag and Drop ActivityBenefits of cash flow forecastingnThe business can foresee any periods in which there will be a short-fall in cash flow and make advance arrangements with its bank or other source of finance to cover the shortfallnBanks are more likely to accommodate a request for an overdraft or loan if the business can show good cash flow managementnCash flow forecasting facilitates better management and use of financial resources Limitations of cash flow forecastingnA forecast is based on assumptions may not be accuratenCustomers may not pay on timenThere may be a need to pay unexpected expenses such as repairsnDemand may change leading to a drop in demand, additional marketing, or a need to develop a new productnEconomic factors such as inflation, high wage claims or recession may affect cash flow Cash Flow QuiznQuiz