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Using a cashflow forecast

Using a cashflow forecast. What is ‘cashflow’?. The flows of money into and out of the business Money flows in through revenue from sales of service or product Money flows out when wages and expenses are paid or stocks are purchased. The principle of cashflow 1.

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Using a cashflow forecast

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  1. Using a cashflow forecast

  2. What is ‘cashflow’? • The flows of money into and out of the business • Money flows inthrough revenue from sales of service or product • Money flows out when wages and expenses are paid or stocks are purchased.

  3. The principle of cashflow 1 • More money IN than OUT = cashflow positive. BUT high surplus of cash should be avoided in non-interest bearing account) • More money OUT than IN = cashflow negative. Can mean shortage of cash topay bills AIMis to have a positive cashflow or at least a balance.

  4. The principle of cash flow Revenue in Expenses out

  5. Inflows Inflows = money received from • Customers • Local and national government grants • Sale of property or equipment • Loans

  6. Outflows Outflows= money spent by the business on • Wages and salaries for staff • Raw materials or stock • Gas, electricity, water and telephone • Rent and business rates • Interest on loans • VAT • Equipment purchases

  7. Cashflow forecasts Cashflow forecasts are prepared when: • A new product or service is planned • New resources (eg new machinery) is being bought • A major sales campaign is planned • There will be a large increase in existing activities, eg making or selling many more products

  8. A basic cashflow diagram

  9. A full cashflow forecast See page 341 in Student Handbook. A = sum of numbers under the inflow heading B= sum of numbers under the outflow heading C = difference between A and B, called net cashflow D = balance of money in bank at the start of the month E = adjusted bank balance after adding or subtracting the net cashflow figure

  10. Computers and cashflow 1 Spreadsheet packages are ideal for cashflow forecasts because: • Once the data and formulae have been entered, the calculations can be done quickly and accurately • ‘What if’ calculations can be carried out swiftly • Alterations to data can be made quickly and recalculations done automatically

  11. Computers and cashflow 2 Potential problems with using a computer are: • Incorrect data or formulae will lead to wrong conclusions • Spreadsheets take time to set up • Computer data can be lost or corrupted

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