Cash & Cash Flow Forecasts Flashcards

All 6 cards in this deck

What is a cash-flow forecast?

A prediction of the cash flowing into and out of a business over a future period, usually month by month.

What are the steps to complete a month in a cash-flow forecast?
e.g. opening balance £500, inflows £2,000, outflows £1,800

1. Net cash flow = inflows $-$ outflows: $2{,}000 - 1{,}800 = £200$
2. Closing balance = opening balance + net cash flow: $500 + 200 = £700$
3. The closing balance becomes next month's opening balance: £700

Name three things a business needs cash to pay for day to day.

Suppliers, overheads (such as rent) and employees' wages.

What is insolvency?

Business failure due to unpaid debts — the business cannot pay what it owes.

True or false? A business that is making a profit cannot run out of cash.

False. Profit and cash are not the same — customers may pay late or cash may be tied up in stock, so a profitable business can still be short of cash.

Give two actions a business could take if its cash-flow forecast shows a negative closing balance.

Arrange an overdraft, ask suppliers for trade credit or longer to pay, chase customers for payment, or cut/delay spending.