Cash Flow Forecasting & Statements

 By the end of the lesson…  All students will be able to describe what cash flow is (Grade C)  Most students will be able to explain the 6 key cash flow terms (Grade B)  Some students will be able to complete a cash flow forecast (Grade A/A*)

 A cash flow forecast is merely a prediction of what money will be coming into the business in the future and what money will be going out of the business in the future to pay for things

CASH IN CASH OUT

 When a business knows how much is coming into the business and going out they can then predict how much if any profit they will make  Cash flow forecasting forewarns a business of any shortfall and helps them make arrangements to reduce spending, to borrow money or to inject capital when necessary

 The following terms are found in cash flow forecasts Match the terms and definitions up

PAYMENTS OF CASH (LOAN, RENT ETC) CASH OUTFLOW OPENING BALANCE AMOUNT OF MONEY COMING INTO THE BUSINESS (SALE OF ITEMS ETC) The amount of money in the bank at the start of the month NEGATIVE CASH FLOW GREATER OUTFLOWS THAN INFLOWS OF CASH GREATER INFLOWS THAN OUTFLOWS OF CASH CLOSING BALANCE The amount of money left at the end of the month after all transactions CASH INFLOW POSITIVE CASH FLOW

CASH OUTFLOW CASH INFLOW OPENING BALANCE CLOSING BALANCE NEGATIVE CASH FLOW POSITIVE CASH FLOW GREATER INFLOWS THAN OUTFLOWS OF CASH The amount of money left at the end of the month after all transactions GREATER OUTFLOW S THAN INFLOWS OF CASH PAYMENTS OF CASH (LOAN, RENT ETC) The amount of money in the bank at the start of the month AMOUNT OF MONEY COMING INTO THE BUSINESS (SALE OF ITEMS ETC)

Complete the cash flow forecast

MarchAprilMayJune ££££ Balance brought forward 20,000 Income Sales Revenue100,000125,000130,00080,000 Rental Income 10,000 TOTAL INCOME EXPENDITURE Wages 20,00025,00020,00030,000 Goods for resale100,000120,00070,00080,000 Electricity 010,00000 Phone 5,00000 TOTAL EXPENDITURE BALANCE CARRIED FORWARD

MarchAprilMayJune ££££ Balance brought forward 20,0005,000(15,000)35,000 Income Sales Revenue100,000125,000130,00080,000 Rental Income 10,000 TOTAL INCOME130,000140,000125,000 EXPENDITURE Wages 20,00025,00020,00030,000 Goods for resale100,000120,00070,00080,000 Electricity 010,00000 Phone 5,00000 TOTAL EXPENDITURE125,000155,00090,000115,000 BALANCE CARRIED FORWARD5,000(15,000)35,00010,000

1. In which month might the next phone and electricity bill be due? 2. Explain why the business in the example might still be profitable despite the fact that it has a negative cash flow during one month? 3. What problems might there be for this business when attempting to forecast income & expenditure over the next few months 4. Think of 2 businesses that will probably have a fairly even flow of income from sales throughout the year & another 2 businesses which might only receive income from sales during 2 or 3 months

It maybe only temporary and may not necessarily cause a problem for the business

 To identify when the business is likely to have a shortage or surplus of cash and what it might do about the situation  To help the business plan for the future  To provide targets for employees of the business to achieve

 It is a forecast  The business may not have much control over some of the figures  The forecast will need updating at regular intervals

Now have a go at the exam question

Give the person next to you a tick for each of the learning objectives that they have completed. To be able to describe what cash flow is To be able to explain the 6 key cashflow terms To be able to create a simple cash flow forecast.