Cash flow forecasts:

Question 1

What do cash flow forecasts do?

Answer 1

• Cash flow forecasts provide insights into the expected inflows and outflows of cash over a specific period
• By analysing these forecasts over time, businesses can better plan and allocate financial resources

Question 2

What are the uses of cashflow forecasts?

Answer 2

• Cash flow forecasts can support an application for a loan and are an integral part of the business plan
• They can help identify where the business may experience cash shortfalls or cash surpluses so plans can be made to manage these periods (e.g. arranging an overdraft)
• Cash flow forecasts aid planning and help a business avoid costly mistakes

Question 3

What are the limitations of cash flow forecasts?

Answer 3

• Forecasts are usually based on estimates, and in reality, inflows and outflows may differ significantly from the estimates
• Cash flow forecasts require appropriate skills, insight, research and time to prepare and update adequately
• External factors that can impact inflows and outflows may not be reflected in the cash flow forecast

Question 4

What is cash inflow?

Answer 4

Cash entering a business in a specific period of time

Question 5

What is cash outflow?

Answer 5

Cash leaving a business in a specific period of time

Question 6

What is net cash flow?

Answer 6

Total cash inflows minus total cash outflows in a specific period of time

Question 7

What is an opening balance?

Answer 7

The previous month’s closing balance carried forward

Question 8

What is a closing balance?

Answer 8

The total of the net cash flow and the opening balance