GCSE Business Studies Financial Forecasting for Business Cash Flow Forecasting & Statements

Learning Outcomes 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*)

Cash Flow Forecasting 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

Money In / Money Out CASH OUT CASH IN

Cash Flow Forecasting 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

Terms Used in a Cash Flow Forecasting The following terms are found in cash flow forecasts Match the terms and definitions up Task

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

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

Creating a Cash Flow Forecast Scenario Complete the cash flow forecast

Balance brought forward 20,000 March April May June £ Balance brought forward 20,000 Income Sales Revenue 100,000 125,000 130,000 80,000 Rental Income 10,000 TOTAL INCOME EXPENDITURE Wages 25,000 30,000 Goods for resale 120,000 70,000 Electricity Phone 5,000 TOTAL EXPENDITURE BALANCE CARRIED FORWARD 10

March April May June £ Balance brought forward 20,000 5,000 (15,000) 35,000 Income Sales Revenue 100,000 125,000 130,000 80,000 Rental Income 10,000 TOTAL INCOME 140,000 EXPENDITURE Wages 25,000 30,000 Goods for resale 120,000 70,000 Electricity Phone TOTAL EXPENDITURE 155,000 90,000 115,000 BALANCE CARRIED FORWARD

Questions In which month might the next phone and electricity bill be due? Explain why the business in the example might still be profitable despite the fact that it has a negative cash flow during one month? What problems might there be for this business when attempting to forecast income & expenditure over the next few months 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

Is a negative cash flow balance a problem? It maybe only temporary and may not necessarily cause a problem for the business

Why Forecast Cash Flow? 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

Problems and Limitations of Cash Flow It is a forecast The business may not have much control over some of the figures The forecast will need updating at regular intervals

Practise Cash Flow task Go to www.mrlingardeconbus.weebly.com Open the “GCW FISH&CHIPS” task. Open a new Excel Document Create a 12 month cash flow forecast.

Exam Question Now have a go at the exam question

Learning Outcomes Peer assessment 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.