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Cash Flow Forecasts. What’s the point?. Why you need them. It’s essential for businesses to know when income will be received and when bills will be paid. This ensures sufficient cash is available It helps review actual figures against the budget Corrective action can be taken early

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Presentation Transcript
cash flow forecasts
Cash Flow Forecasts

What’s the point?

why you need them
Why you need them

It’s essential for businesses to know when income will be received and when bills will be paid.

This ensures sufficient cash is available

It helps review actual figures against the budget

Corrective action can be taken early

Today’s decisions affect future cash flow

next

they help when
They help when:

Sales are lower than planned

Debtors pay later than anticipated

Bad debts are higher than forecast

Interest rates rise

Costs increase

next

difference between profit and cash
Difference between profit and cash

Profit = difference between the total amount your business earns and all of its costs.

You may be able to forecast a good profit for the year yet still face times when you are strapped for cash.

next

inflows
Inflows

Payment for goods/services from your customers

Receipt of a loan

Interest on savings and investments

Increased bank overdrafts/loans

Next

outflows
Outflows

Purchases of stock or tools

Wages, rent and daily operating expenses

Purchase of fixed assets (machinery, PC’s, office furniture etc.)

Loan repayments

Income tax, VAT and other taxes

Next

improve cash flow by
Improve cash flow by:

Asking customers to pay sooner

Chase debts promptly

Ask for extended credit terms

Order less stock but more often

Lease rather than buy (premises, tools)

Next

sales planning
Sales planning

How many new customers do you gain each year?

How many customers do you lose each year?

What is the average level of sales you make to each customer?

Are there particular months where you acquire or lose more customers than usual?

Next

sales assumptions
Sales assumptions

Every year is different

You need to list any changing circumstances that could significantly affect your sales.

These factors - known as the sales forecast assumptions - form the basis of your forecast.

next

frequent forecasting mistakes
Frequent Forecasting Mistakes

Wishful thinking

Ignoring your own assumptions

Moving goal posts

No consultation

No feedback

Next

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Useful resources:

Tool: COBRA: accessed for free from Rise Up team in The Careers Service (market research tool)

Book: The Entrepreneurs Book of Checklists by Robert Ashton

www.startups.co.uk

www.businesslink.gov.uk