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  1. business-and-its-environment

    enterprise
    6 主题
  2. business-structure
    6 主题
  3. size-of-business
    3 主题
  4. business-objectives
    3 主题
  5. stakeholders-in-a-business
    2 主题
  6. external-influences-on-business
    12 主题
  7. business-strategy
    10 主题
  8. human-resource-management
    human-resource-management-hrm
    8 主题
  9. motivation
    4 主题
  10. management
    2 主题
  11. organisational-structure
    5 主题
  12. business-communication
    5 主题
  13. leadership
    2 主题
  14. human-resource-strategy
    3 主题
  15. marketing
    the-nature-of-marketing
    7 主题
  16. market-research
    3 主题
  17. the-marketing-mix
    6 主题
  18. marketing-analysis
    5 主题
  19. marketing-strategy
    3 主题
  20. operations-management
    the-nature-of-operations
    3 主题
  21. inventory-management
    2 主题
  22. capacity-utilisation-and-outsourcing
    1 主题
  23. location-and-scale
    2 主题
  24. quality-management
    1 主题
  25. operations-strategy
    4 主题
  26. finance-and-accounting
    business-finance
    2 主题
  27. sources-of-finance
    3 主题
  28. forecasting-and-managing-cash-flows
    1 主题
  29. costs
    4 主题
  30. budgets
    1 主题
  31. financial-statements
    4 主题
  32. analysing-published-accounts
    6 主题
  33. investment-appraisal
    2 主题
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The meaning and purpose of cash flow forecasts

  • A cash flow forecast is a prediction of the anticipated cash inflows and outflows, usually for a six- to twelve-month period

    • Cash inflows include income from sales, loan sums received from the bank, interest received or capital injected into a business by owners

    • Cash outflows include payments for stock, staff wages and salaries, rent and utility bills and repayments of bank loans

Examiner Tips and Tricks

You may be asked to identify an example of a cash inflow or a cash outflow from a list

Inflows can be remembered using the acronym SLIC (Sales, Loans, Interest, Capital) while outflows can be remembered using the acronym SWURRS (Stock, Wages, Utilities, Rent, Repayments Salaries)

  • A detailed business plan usually includes a cash flow forecast

    • It provides evidence for investors or lenders that finance is required

    • It allows owners or managers to make plans to cover cash shortfalls

  • Cash flow forecasts are particularly useful in the following situations:

    • Starting up a business

      • Identifying how much cash is needed in the first few months

    • Running an existing business

      • Recognising where a fall in sales may require use of an overdraft facility

    • Supporting applications for borrowing

      • Determining the size of loan or overdraft needed, when and for how long it is needed and by when it is likely to be fully repaid

    • Managing transactions

      • Identifying how much or how little cash is deposited at the bank can determine when bills should be paid

Interpreting cash flow forecasts

  • The cash flow forecast structure

    • Compiles expected cash inflows and cash outflows, month by month,

    • Takes into account cash present at the beginning of the period

    • Determines the cash flow position at the end of each month over a period of time

  • Although the layout can vary, a typical cash flow forecast includes each of the key elements

Example three-month cash flow forecast

Cash flow table for January to March, showing total inflows, outflows, net cash flow, opening and closing balances with explanatory notes.
The three-month cash flow forecast shows expected inflows and outflows of cash, net cash flow, opening and closing balances

Key terminology

  • The opening balance is the cash position at the beginning of each month

    • In the first month, this is usually

      • Cash carried forward from any earlier trading

      • Cash introduced by the owner or from loans received

    • In later months, the opening balance is the closing balance carried forward from the previous month

  • Net cash flow is the difference between cash inflows and cash outflows during a month

Calculating net cash flow

Net cash flow formula: cash inflows minus cash outflows. Inflows include sales revenue; outflows include wages. Illustrated with coins and notes.
Net cash flow is calculated by subtracting cash outflows from cash inflows during a given period of time

  • The closing balance is the sum of the month’s net cash flow and the opening balance

    • The closing balance is calculated using the formula

Closing space balance space equals space Net space cash space flow space plus space Opening space balance

Calculating and amending cash flow forecasts

  • A business must first gather information about all cash inflows and cash outflows it expects to encounter over the period

  • The following steps should then be taken to construct the cash flow forecast

Step 1: Calculate total cash inflows

Table showing cash inflows for March, April, and May. Categories: Cash from sales and Capital introduced. March has highest total inflow.

  • In this instance, the business expects to receive cash inflows from sales in March, April and May

  • Owners’ capital of €6,000 will be introduced in March

  • The total for each month is calculated by adding cash from sales to capital introduced

Step 2: Calculate total cash outflows

Table showing cash outflows for March to May including rent, stock purchases, wages, and utilities, with total amounts listed for each month.

  • In this instance, the business expects to pay rent of €1,400 in March, April and May

  • It will purchase a significant amount of stock in March, with smaller amounts in April and May

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