Transcript Cash Flow Forecasting

Cash Flow Forecasting
AS Business Studies
Aims and Objectives
Aim:
• Understand cash inflows and outflows
Objectives:
• All: Recap on costs, revenues and profits
• All: Define cash flow forecasting
• Most: Distinguish between cash inflows and
outflows
• Some: Assess the advantages of cash flow
forecasting.
Starter
Define the following:
• Costs
• Revenues
• Profits
Describe the relationship between costs,
revenues and profits.
5 Mark Question
Steve owns and runs a car customising
business. Here are his financial figures.
5 Mark Question
What is cash flow?
Task: In groups determine a definition for cash flow.
Definition:
The total cash payments (inflows) into a business minus
the total cash payments (outflows).
Why is Cash Flow Important?
• Round Robin
• Why is cash flow important?
• Brainstorm Ideas.
Timing of
Receipts
(inflows)
Timing of
Payments
(outflows)
Importance
of Cash
Flow
Suppliers
and
Creditors
Obtaining
Finance
Cash Flow Forecasting
Definition:
• An estimate of a firm’s future cash inflows and
outflows.
• Essential for a businesses’ financial planning.
• Could be based on historical data, or
primary/secondary research or predictions.
Cash Flow Quiz
• Decide whether each item is an inflow or an
outflow.
1.
2.
3.
4.
5.
6.
7.
8.
Owners capital injection
Debtors Rent payment
Electricity, gas, water
Wages
Cash purchases
Loans received
Interest repayments
Raw Materials
Cash Inflows
Inflow
Description
Owners Capital
Money put into the business by the
owner. Easy to forecast.
Bank Loans Received
Loans from bank, easy to forecast
agreed with bank.
Customers cash purchases
Difficult to forecast as depends on
sales. Sales forecast?
Debtors Payments
Payments from people who owe
money. Difficult to forecast, when will
debtors pay?
Cash Outflows
Outflows
Description
Rent
Easy to forecast
Electricity, Gas, Water
Difficult to forecast as vary with
customers/opening hours etc.
Wages / Salaries
Could differ, could be the same.
Other Expenses
Materials, etc.
Cash Flow Forecast Modelling
• Young’s Sports Ltd
• Sort your cards into inflows and outflows on
your table.
• Decide on where you think each item will go
on your Cash Flow Forecast
Cash Flow Forecast Modelling
Cash Flow Forecast of ...............................................................
For the Period 01/2012 - 2/2012
JANUARY
Forecast
CASH RECEIVED/RECEIPTS
TOTAL CASH IN £
EXPENDITURE
TOTAL CASH OUT £
NET CASH FLOW
(TOTAL CASH IN – TOTAL CASH OUT)
OPENING BALANCE
CLOSING BALANCE
FEBRUARY
Forecast
Plenary
• Define cash flow forecasting
• Why do you feel it is important to forecast
cash flow for businesses?
Level 4:
What do you feel the advantages are of
producing a cash flow forecast?