2.  A cash flow forecast is a financial document that shows the expected movement of cash into and out of a business in a particular time period

3.  Cash flow forecasts are based on 3 main concepts:  Cash inflows  Cash outflows  Net cash flow

4.  Money coming in  Comes from sales revenue (customers purchasing goods), payments from debtors, loans, interest earned from bank, sales of assets, rent earned from property owned  Referred to as receipts

5.  Money going out  Cash leaves a business when the business needs to pay bills  A business needs to itemise their expenses: labour, purchasing stock, rent, texes, advertising, interest, etc  Referred to as payments, expenses, outgoings

6.  The difference between the inflows and the outflows, in a particular period of time  A firm wants the net cash flow to be positive, however they may be able to service temporarily if they experience negative cash flow  Long term, inflows will need to be greater than outflows

7.  If a business needs external finance, a bank or lender will want to see a cash flow forecast to help them decide whether or not to lend $$  Help managers anticipate and identify times when they will be cash poor. They can then work out strategies to deal with this (e.g. arrange a bank overdraft to get thru the period when outflows are expected to be more than inflows)  Assists with a business’s planning process.

8.  Opening balance  The amount of cash a business has at the beginning of the trading period. The opening balance for one month will be the same as the closing balance in the previous month.  Closing balance  The amount of cash a business has at the end of the trading period.  Closing balance = opening balance plus net cash flow

9. Complete Question 3.16 (a, b) on page 231 of your textbook. Write your answers in your workbook. Hint: do the cash flow forecast in pencil

11.  What can Juma do to improve cash flow?  Cutting costs and cutting expenses is well within management’s control and can be quickly done (your fired)  Increasing revenues from sales is more difficult (but not impossible!)  Recalculate cash flow to see if your suggestions help