Starter Cash flow? Define cash flow forecast. Give a list of inflows and outflows. If cash flow is negative what does this mean? Why is it linked to business survival?

What is a cash flow forecast? It is a detailed examination of a company’s expected future cash inflows and outflows over a future period e.g. one year ahead.

Benefits of cash flow forecasts It enables managers to anticipate periods when cash flows may be high or low. -Ensuring liquid assets are available to meet payments. -Identify periods of cash shortfall -Identify periods of cash surplus -Limit borrowing and minimise interest payments -Helps with the application of bank loans

Negatives What might the negatives be?

Cash flow eurs/roblaw.shtml eurs/roblaw.shtml Rob law ‘added that cash flow remains a huge problem for small businesses as banks tighten their lending criteria in the face of the economic downturn’

CASH FLOW - Problems Seasonal demand Overtrading Over investment in fixed assets – not enough money for day-to-day running Credit sales Poor stock management Poor management of suppliers Low profits

CASH FLOW – solutions Cut costs Reduce stock Delay payments to suppliers Reduce the credit period offered to customers Cut back or delay expansion plans Use an overdraft/loan

TASK To compile a cash flow forecast businesses can use?

To compile a cash flow forecast businesses can use: Previous cash flow forecasts Cash flow statements (past information) Consumer research – prices/potential sales Study other competitors – what is their sales revenue? Banks/consultants – expert advice

Homework Evaluate the use of a cash flow forecast for a new start up business. (12 marks)