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Topics Covered

Topics Covered. Business Costs Revenue Profit Expenditure Break Even Analysis Budgeting Cash Flow Forecast Profit & Loss Balance Sheet Maximising Profits. UNIT TITLE: Unit 2:Finance for Business LESSON TITLE: Cash Flow Forecasting LEARNING AIM: B. COMPETENCY FOCUS:

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Topics Covered

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  1. Topics Covered • Business Costs • Revenue • Profit • Expenditure • Break Even Analysis • Budgeting • Cash Flow Forecast • Profit & Loss • Balance Sheet • Maximising Profits

  2. UNIT TITLE:Unit 2:Finance for Business LESSON TITLE: Cash Flow Forecasting LEARNING AIM: B COMPETENCY FOCUS: Key Skills (L5): you will be able to develop your numeracy skills to calculate financial transactions of a business and to interpret financial data. Learning Objectives By the end of the lesson, you should be able to… LO1) To describe the purpose of a cash flow forecast LO2) To explain the sources of cash inflows and cash outflows LO3) To complete a cash flow forecast from given information LO4) To analyse a business’ finances based on cash flow information

  3. What is cash flow? • CASH FLOW – the movement of money into and out of a business bank account INFLOWS refers to money received by the business OUTFLOWS refers to money paid out by the business EXAMPLES: • Sales revenue • Capital • Loans • Grants EXAMPLES: • Purchases • Rent & Rates • Wages & Salaries BUSINESS

  4. Cash Flow The difference between the inflows and the outflows is called the net cash flow. Positive net cash flow – Inflows are greater than out flows Negative net cash flow – Inflows are not enough to cover out flows Cash Balance – the amount of money in a business’ account at any particular time

  5. Cash Inflows • Money coming IN to the business • Cash can come in to the business in various ways: - Sales - Capital - Loans • These can be regular (expected) and irregular

  6. Cash Outflows • Money going OUT of the business • Cash can flow out of the business in various ways: - Purchases - Wages - Loan repayments • These can be regular (expected) and irregular

  7. What is a ‘cash-flow forecast’? It is a useful technique that a business can use to manage its money and to predict what their income and outgoings might be over the next 12 months.

  8. Building a Cash Flow Forecast To build a cash-flow forecast you need to have the following information Opening Balance- the amount of money in the business’ bank account at the start of the period Income per Period – the amount of money expected to go into the bank account in that month Expenditure per Period – the amount of money expected to leave the bank account in that month Closing Balance – the amount expected to be in the bank account at the end of the period

  9. Prepare a Cash Flow Forecast You are the Financial Advisor to Frankie Gerard. He want to open his own salon in Birmingham called Short Cutz. You advise him that it would be a good idea to prepare a cash flow forecast to make sure that he has enough money to pay for his outgoings (expenditure) over the next 12 months. He will also need to present this document when meeting with his bank manager to apply for finance. Using the information provided, prepare a cash flow forecast. In the first instance, by way of introducing your forecast, you must define what cash flow forecasting is, how it is carried out and of what benefit it would be to a business, reflecting on the figures you calculate and their possible effect on ‘Short Cutz’.

  10. Mock Exam Mock Exam [Time allowed:1hr]

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