Cash Flow Forecasting

Cash Flow = The movement of cash into and out of a business over a period of time
1. The timing of and relationship between cash inflows and cash outflows can be crucial to the survival of a business
Cash inflows = are the receipt of cash into a business
1. Examples include : Sales of goods, payment by debtor, loans received
Cash outflows = are the transfer of cash from a business
1. Examples include : buying materials, paying expenses, repaying loans, buying capital equipment
Net monthly cash flow = the balance of a month's total cash inflow in relation to the month's total cash outflows
1. Cash inflows
2. Cash outflows
Cash flow problems = A business with a negative net monthly cash flow struggle to meet day to day expenditure
Cash flow forecast = the process of estimating the size and timing of cash inflows and outflows
Cash inflows = cash in from sales
1. Cash sales estimated from sales forecast
  1. Difficult for new businesses, may be over or under estimated
  2. To a certain extent, it depends upon the scale and accuracy of research
2. Debtor payments estimated from sales forecast
  1. Determined by credit terms offered to customers and their reliability
Cash outflows = cash out for purchases and payments
1. Payment of fixed costs
  1. These should be easy to estimate on a month to month basis
2. Payment of variable costs
  1. If sales are difficult to forecast accurately then costs are as well
  2. Suppliers may change prices or payment terms
Net cash flow = The net result of cash inflows and cash outflows each month
1. Calculated as...CASH INFLOWS - CASH OUTFLOWS
Opening balance = How much the business has at the start of each month
1. The closing balance for one month becomes the opening balance for the next
Closing balance = How much the business has at the end of each month
1. Calculated as...OPENING BALANCE + NET CASH FLOW

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Cash Flow Forecasting

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	Created by lj.willis over 8 years ago

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