1. Mr Stokes

2. To understand the meaning of cash flow To understand why cash flow is important to a business To be able to construct & interpret a cash flow forecast

3. Cash Flow Forecasting Cash flow is the flow of money into and out of a business over a given period of time A cash flow forecast is a prediction of how cash will flow into and out of a business over a given period of time

4. Why is Cash Flow So Important? “Companies don’t go bust because they lose money, they go bust because they run out of money” “Cash flow is the most common reason for business failure. It is estimated that 70% of businesses that collapse in their first year do so because of cash flow problems.” Banks always request a cash flow forecast as part of a business plan when considering an application for a loan An example: A business accepts an order for £50 000. It predicts costs of £40 000 and a profit of £10 000. Why might it face cash flow problems in completing the order?

5. Importance of Cash Flow £ cash flow +20 000 +10 000 -10 000 -20 000 -30 000 -40 000 Materials Bought Wages & Overheads Paid Delivery to Customer Credit Period (Wait for Customer To Pay) Profit Order received Production complete Goods delivered & Bill Presented £50 000 payment received from customer Weeks 0

6. 0000000Closing Bank Balance 0000000Total Payments 0 Rent 0 Advertising 0 Wages 0 Stock 0 General expenses Expenses / Payments 0000000total receipts 0 capital introduced 0 Enterprise grant 0 loan 0 Sales revenue Incomes / Receipts 000000 opening bank balance £££££££ TotalJunMayAprMarFebJan Cash flow forecast Add up all the expenses Add up all the incomes Opening Balance = last month’s closing balance Closing Balance = incomes – expenses +opening balance

7. -£1,000 £850£1,500£150Closing Bank Balance £17,000£4,850£3,150£3,650£5,350Total Payments £4,000£2,000 Rent £400£200 Advertising £4,000£1,000 Wages £8,000£1,500£2,000£2,500£2,000Stock £600£150 General expenses Incomes / Payments £16,000£3,000£2,500£5,000£5,500total receipts £2,000 capital introduced £1,000 £500 Enterprise grant £3,000 loan £10,000£3,000£2,000£3,000£2,000Sales revenue Incomes / Receipts £850£1,500£150£0opening bank balance £££££ TotalAprMarFebJan Cash flow forecast 4. Opening Balance = last month’s closing balance 3. Closing Balance = receipts – payments +opening balance 1. Add up all the incomes 2. Add up all the expenses

8. Quick Question Why would a bank want to see a persons cash flow forecast before lending them money? Why?

9. Task 1 Using the worksheet as your information source complete the cash flow forecast. Answer the questions.

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11. Task 2 Using the worksheet as your information source complete the cash flow forecast. Answer the questions.

12. Answers