1. AS Business Studies Business Accounting
Cash Flow Forecasting
AS Business Studies Business Accounting

2. The Importance of Cash Flow

3. Cash Flow Forecast
A Cash Flow Forecast is a prediction of the future cash inflow (revenue) and cash outflow (costs) of a business

4. The Purpose of Cash Flow Forecasting
Cash Flow Forecasting has 2 main purposes:
To help avoid unexpected cash flow crises. By forecasting cash flow a business can see any future cash shortages and take action to overcome this problem
To support applications for loans. Cash flow forecasts give banks more confidence that the business will be able to make necessary repayments

5. Cash Flow Forecast Construction
Total Cash Inflow: The sum of all income received by the business
Total Cash Outflow: The sum of all expenditure (costs)
Net Cash Flow = Total Cash Inflow – Total Cash Outflow

6. Cash Flow Forecast Construction
Opening Balance: The amount of cash the business holds at the start of the month. It is equal to the value of the closing balance of the previous month
Closing Balance: The amount of cash the business holds at the end of the month. Closing Balance = Opening Balance + Net Cash Flow

7. Why is cash important to the business
Cash is the ´life blood´ of the business, it is required to-
Pay bills such as overheads
Pay the worker´s wages
Pay for supplies
Repay the business debts
Many businesses , that on paper appear profitable, fail due to a lack of cash

8. Interpreting a cash-flow forecast
Negative net cash flows may not be detrimental to the business provided that they do not result in negative closing balances. However, they may indicate that the business will have future problems
Negative closing balances are always detrimental regardless of their duration. If a business runs out of cash, it will not have the finance to pay its everyday costs and therefore may be unable to produce the goods that will generate future revenue