GCSE Business StudiesCash flow Cash Flow and Cash Flow Forecasts Click here for Part 1 Click here for Part 2

GCSE Business StudiesCash flow Cash Flow and Cash Flow Forecasts What they are…. Why they matter…. Who uses them…. Part 1

GCSE Business StudiesCash flow Outcomes: All will be able to define Cash Inflows and Cash Outflows. Level 1 Grade E Knowledge skills. Most will be able to explain the concept of Net Cash Flow. Level 2 Grades D to C – Explanation Skills. Some will be able to advise actions that should be taken having studied a Cash Flow Forecast. Level 3 Grades B to A* - Advising Skills.

GCSE Business StudiesCash flow Imagine it is December 1 st You have £70 in your bank account on Dec 1st In the first 2 weeks of December, you SPEND £60 on presents for your friends On Christmas Day, your favourite auntie gives you £50 as a gift and your elder sister gives you £50. You put this £100 in the bank as soon as you can NOW USE THIS INFORMATION TO ANSWER THE FOLLOWING QUESTIONS …. DECEMBER S S M T W T F BANK £70 £60 Starter – The concept of cash movements!

GCSE Business StudiesCash flow Starter – The concept of cash movements! Q1. What will your bank balance be at the CLOSE of December? Q2. What was your OUTFLOW of cash in the month? Q3. What were your INFLOWS of cash in the month? Q4. If your “Net Cash Flow” is found by INFLOWS minus OUTFLOWS of cash, what was your NET CASH FLOW in December? Q5 What is your bank balance at the OPENING of January (Jan 1 st )? Show answers £110 £60 £100 + £40 £110

GCSE Business StudiesCash flow £50 Imagine it is December 1 st You have £30 in your bank account on Dec 1st. You have an overdraft limit of £50 on your account In the first 2 weeks of December, you SPEND £60 on presents for your friends On Christmas Day, you get no money as gifts – everyone bought you a present NOW USE THIS INFORMATION TO ANSWER THE FOLLOWING QUESTIONS …. DECEMBER S S M T W T F BANK £30 £60 Starter – The concept of cash movements!

GCSE Business StudiesCash flow Q1. What will your bank balance be at the CLOSE of December ? Q2. What was your OUTFLOW of cash in the month ? Q3. What were your INFLOW of cash in the month ? Q4. If your “Net Cash Flow” is found by INFLOWS minus OUTFLOWS of cash, what was your NET CASH FLOW in December ? Q5 What is your bank balance at the OPENING of January ( Jan 1 st )? Starter – The concept of cash movements! - £40 £70 Nil £70 - £40 Show answers It’s a good job you had an overdraft set up on your bank account!

GCSE Business StudiesCash flow DecemberJanuaryFebruary CASH INFLOWS Income from chores.ZERO Income from gifts.£100 TOTAL INFLOWS (A)£100 CASH OUTFLOWS Spending on others.£60 Spending on self.ZERO TOTAL OUTFLOWS (B)£60 Net Cash Flow for month (C): ( found by A MINUS B) £40 Opening Bank Balance (D) ( Start of month) £70 Closing Bank Balance ( End of month). Found by (C) plus (D) £110 A Cash Flow Table…..Using Example 1

GCSE Business StudiesCash flow A Cash Flow Table…..Using Example 2 DecemberJanuaryFebruary CASH INFLOWS Income from chores.ZERO Income from gifts.ZERO TOTAL INFLOWS (A)ZERO CASH OUTFLOWS Spending on others.£70 Spending on self.ZERO TOTAL OUTFLOWS (B)£70 Net Cash Flow for month (C): ( found by A MINUS B) (-£70) Opening Bank Balance (D) ( Start of month) £30 Closing Bank Balance ( End of month). Found by (C) plus (D) (-£40) OVERDRAWN !

GCSE Business StudiesCash flow Cash Flow Forecasting If a person or a business wants a clearer picture of when their best and worst months for cash are, they will try and ESTIMATE their monthly inflows and outflows of cash. They use the cash flow table to help them. RESULT- the cash flow forecast – tells you which months you may need help from your bank with an overdraft. Let’s have a go at a cash flow forecast for January using example 1….

GCSE Business StudiesCash flow Activity – January Cash Flow Estimate Imagine it is JANUARY 1 st. You have £110 in your bank account on Jan 1st. By January 31 st, you ESTIMATE you will have earned £20 for doing chores around the house. FILL THIS IN ON THE CASH INFLOWS. In the first 2 weeks of January, you ESTIMATE that you’ll SPEND £60 on a birthday present for your mom. FILL THIS IN ON THE CASH OUTFLOWS. You also ESTIMATE that you’ll spend £50 on yourself on clothes. FILL THIS IN ON THE CASH OUTFLOWS. NOW USE THE INFORMATION YOU HAVE ADDED TO THE CASH FLOW CHART TO WORK OUT and FILL IN: (A) The predicted NET CASH FLOW for January. (B) The predicted CLOSING BANK BALANCE for January ( and therefore the opening bank balance for February )….

GCSE Business StudiesCash flow Estimating January - Cash Flow Table …..Using Example 1 DecemberJanuaryFebruary CASH INFLOWS Income from chores. ZERO£______ Income from gifts. £100ZERO TOTAL INFLOWS (A) £100£______ CASH OUTFLOWS Spending on others. £60£______ Spending on self. ZERO£______ TOTAL OUTFLOWS (B) £60£______ Net Cash Flow for month (C): ( found by A MINUS B) £40 (-£______ ) ( a minus because outflows are more than inflows) Opening Bank Balance (D) ( Start of month) £70£110 Closing Bank Balance ( End of month). Found by (C) plus (D) £110£______ Show answers

GCSE Business StudiesCash flow Quick check …. a) How do we find the closing bank balance for a month? b) How can we decide what the opening bank balance is for the following month? What are cash inflows ? What are cash outflows? How do we find NET CASH FLOWS for a month ?

GCSE Business StudiesCash flow In a minute, we are moving on to ESTIMATE your cash flow forecast for February. As you only have £20 in the bank at the start of February, what FINANCIAL advice do you think a good business person or a bank manager would give you about your cash flow situation in February? Quick check …. Advice could include …. Watch your spending! Try and do more chores to earn more money! Get a part time job around school ! Advice could include …. Watch your spending! Try and do more chores to earn more money! Get a part time job around school !

GCSE Business StudiesCash flow Imagine it is FEBRUARY 1 st You have £20 in your bank account on Feb 1 st. By February 29th, you ESTIMATE you will have earned £30 for doing more chores around the house. FILL THIS IN ON THE CASH INFLOWS. In the first 3 weeks of January, you ESTIMATE that you’ll SPEND £60 on a birthday present for your dad. FILL THIS IN ON THE CASH OUTFLOWS. You also ESTIMATE that you’ll spend £10 on yourself on hair care. FILL THIS IN ON THE CASH OUTFLOWS. NOW USE THE INFORMATION YOU HAVE ADDED TO THE CASH FLOW CHART TO WORK OUT and FILL IN: (A) The predicted NET CASH FLOW for FEBRUARY. (B) The predicted CLOSING BANK BALANCE for FEBRUARY ( and therefore the opening bank balance for MARCH )…. Activity – February Cash Flow Estimate

GCSE Business StudiesCash flow DecemberJanuaryFebruary CASH INFLOWS Income from chores. ZERO£20 Income from gifts. £100ZERO TOTAL INFLOWS (A) £100£20 CASH OUTFLOWS Spending on others. £60 Spending on self. ZERO£50 TOTAL OUTFLOWS (B) £60£110 Net Cash Flow for month (C): ( found by A MINUS B) £40 (-£90) ( a minus because outflows are more than inflows) Opening Bank Balance (D) ( Start of month) £70£110 Closing Bank Balance ( End of month). Found by C plus D £110£20 Answers February - Cash Flow Table ….. Using Example 1 £30 ZERO £30 £60 £10 £70 (-£40) £20 (-£20) Show answers

GCSE Business StudiesCash flow Activity – Summer Cash Flow Estimates Imagine it is June 1 st. Use the information provided on the cash flow forecast to fill in and interpret the missing figures. Imagine it is June 1 st. Use the information provided on the cash flow forecast to fill in and interpret the missing figures.

GCSE Business StudiesCash flow JuneJulyAugust CASH INFLOWS Income from chores. £10£30£10 Income from gifts. ZERO £10 TOTAL INFLOWS (A) £10£30£______ CASH OUTFLOWS Spending on others. ZERO£60£40 Spending on self. ZERO£20£30 TOTAL OUTFLOWS (B) £ZERO£80£______ Net Cash Flow for month (C): ( found by A MINUS B) £______ (-£______ ) ( a minus because ____________ are more than inflows) (-£50) Opening Bank Balance (D) ( Start of month) £70£80£______ Closing Bank Balance ( End of month). Found by (C) plus (D) £______£_______(-£20) Completing summer - Cash Flow Table…..Activity OUTFLOWS Show answers

GCSE Business StudiesCash flow Summer Cash Flow Activity – Questions for you to answer … 1.Based on your answer for the closing bank balance in August, what would you advise this person to ensure they have set up on their bank account BEFORE August? 2.What advice might you give them about their cash planning situation for SEPTEMBER?

GCSE Business StudiesCash flow Summary: A Cash Flow Forecast is a table where a person or business tries to forecast/ estimate their inflows and outflows of cash over a period of months. This helps them identify where they need support from a bank with an overdraft facility AND It shows times where there is plenty of spare cash which could then be put in to an interest earning savings account.

GCSE Business StudiesCash flow Questions - Use of Cash Flow Forecasts…. 1.Why will the owner of a business want to have a cash flow forecast? 2.Why will they compare their ACTUAL cash flows each month with their estimated cash flow forecast? 3.Why will a bank want to see a cash flow forecast before they decide whether or not to grant an overdraft or bank loan? 4.Why might a potential investor want to see a cash flow forecast for a company ?

GCSE Business StudiesCash flow Cash Flow and Cash Flow Forecasts Cash Flow Forecasts in a business context …. Part 2

GCSE Business StudiesCash flow All will be able to Group Cash Inflows and Cash Outflows for a business. Level 1 Grade E Knowledge skills. Most will be able to complete a cash flow forecast and interpret it. Level 2 Grades D to C – Application and Interpretation Skills. Some will be able to advise problems with cash flow forecasting and discuss why stakeholders will be interested to see them. Level 3 Grades B to A* - Advising Skills. Outcomes:

GCSE Business StudiesCash flow Match the definition to the key term… Key termDefinition 1. CASH INFLOWS 2. Cash outflows 3. Net Cash Flow 4. Opening Bank Balance 5. Closing Bank Balance Cash Inflows MINUS Cash Outflows Cash Income coming in to a person or business Bank balance at the start of a month ( same as closing balance of the previous month!) Net Cash Flow plus opening Bank Balance tells you this…. Cash spent by a person or business Click and drag the correct definition to match the key term

GCSE Business StudiesCash flow CASH INFLOWS to a business compared to the CASH OUTFLOWS … 1. Vehicle Expenses e.g. fuel 2. Sales Turnover ( or Revenue) 3. Stock Purchases 4. Credit Notes from Suppliers 5. Energy Costs 6. Insurance 7. Share Capital ( or Owners Capital) 8. Bank Loan Received 9. Monthly repayments and interest on Bank Loan. 10. Government Grant 11. Wages and salaries paid to staff. 12. Rent. Cash inflow/ outflow OUTFLOWINFLOW Click the boxes, once for inflow, twice for outflow OUTFLOWINFLOW OUTFLOWINFLOW OUTFLOWINFLOW OUTFLOWINFLOW OUTFLOWINFLOW OUTFLOWINFLOW OUTFLOWINFLOW OUTFLOWINFLOW OUTFLOWINFLOW OUTFLOWINFLOW OUTFLOWINFLOW

GCSE Business StudiesCash flow Put these stages of working out a Cash Flow for a month in the best order….… A)Add NET CASH FLOW to the opening bank balance toAdd NET CASH FLOW to the opening bank balance to find the closing bank balance for the month. B) ADD up ALL Cash INFLOWS for the month. C) Take Cash OUTFLOWS away from total cash INFLOWS to find the NET CASH FLOW for the month D) ADD up all Cash OUTFLOWS for the month. E) Write the closing bank balance for the current month in to the box for the OPENING bank balance of the NEXT month. First Last Reveal answer B, D, C, A, E

GCSE Business StudiesCash flow Activity – A Business Cash Flow We are going to look at an example of a completed Cash Flow Forecast for 3 months of a business. We are then going to check we can complete and interpret some cash flows. Note – need word document worksheet for this task called “CASH FLOW WJEC ACTIVITY”.

GCSE Business StudiesCash flow Discuss our answers… Explain why you think Cathy’s purchases of materials and energy costs rise quite a bit in December compared to October and November. Fully explain what you think the difficulties and problems might be when businesses try and do cash flow forecasting. Why might using spreadsheet software help a business create a Cash Flow Forecast? If when a business compares its ACTUAL cash flow with its cash flow forecast, the cash flow forecast is constantly UNDERESTIMATING the amount of cash INFLOWS, what advice would you give the business about what it should do with its Cash Flow Forecast Table?