Cash Flow Forecasting
Cash Flow Forecast
-Is the prediction of cash in and out of the company
-Firms must monitor cash to make sure they are in a position to pay its bill. Otherwise they may go into liquidation ( “Go bust” ).
-Cash inflows refer to Cash ( coins, notes, cheques ) coming into the Business from sales of goods / assets
-Cash outflows refer to cash needed to pay for materials, labour, rent etc.
-Net cash flow looks at the difference between cash in and cash out in a month
-Firms must monitor cash to make sure they are in a position to pay its bill. Otherwise they may go into liquidation ( “Go bust” ).
-Cash inflows refer to Cash ( coins, notes, cheques ) coming into the Business from sales of goods / assets
-Cash outflows refer to cash needed to pay for materials, labour, rent etc.
-Net cash flow looks at the difference between cash in and cash out in a month
Cash Flow forecast example
L3 Uses of Cash Flow Forecasting
-Helps plan for deficits of cash eg. Organise loan / overdraft for January to cover the 100 deficit or perhaps extend the credit period on materials.
-Helps plan for surpluses of cash eg. The firm may plan purchase of machinery sales in Feb with the 1200 surplus in cash
L4 Limitations of Cash Flow Forecasting
-It is a prediction only i.e. Demand may change, material prices increase, changes to economic climate and trends
Conclusion
- Cash flow forecasting is a useful tool as if the company monitors cash it should prevent liquidation but it depends on the accuracy of the information in the first instance.