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AS Forecasting & Managing Cashflows

forecas

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10 views

AS Forecasting & Managing Cashflows

forecas

Uploaded by

wijdan.ali7869
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Cash Flows

Cash Flow

• it is a di erence between a business’s cash in ows and cash out ows


• if not su cient & positive, could lead to nancial failure — & force business into liquidation

• Cash Flow Forecast — is an estimate of a business’s cash in ows & out ows
• Net Monthly Cash Flow — di erence between cash in ows & out ows for a business during a speci c month
• Opening Cash Balance — amount of cash a business is having at the beginning of each month
• Closing Cash Balance — amount of cash a business is having at the end of each month

Why Is It Essential For Entrepreneurs/Small Businesses To Have Cash Flow Planning

• new businesses have less credit time given by the suppliers


• banks may not be willing to lend until a proper, convincible cash ow forecast is presented
• there is limited nance in beginning — proper cash ow planning is important for survival in early years

Cash In ows Cash Out ows


• Owners Capital • Annual rent
• Bank Loans • Lease payment
• Customer Purchases From Cash • Bills (electricity, water bills)
• Trade Receivables Payment • Labour wages
• Variable costs

Closing Cash Balance = Opening Balance (closing cash balance of previous) + (Cash In ows — Cash Out ows)

Bene ts Of Using Cash Flow Forecasts Limitations


• Negative cash ow is revealed — allowing • Unexpected costs — could lead to major
business to acquire sources nance inaccuracies in forecast, making it hard to follow
accordingly — and plan out measures to now
improve cash ow • Incorrect Assumption Of Sales — due to poor
• Essential for part of business plan — market research
necessary for survival
Causes Of Cash Flow Problems

1) Lack Of Planning
• cash ow forecasts helps to identify how much cash is needed in future — not planning these cash ow forecasts
could lead to cash ow problems

2) Poor Credit Control


• not managing trade receivables properly
• business must keep reminding its customers about the amount of money they owe
• credit period o ered to the customers not balanced as compared to one received from from the suppliers of the
business — in short allowing customer too long to pay

3) Expanding Too Rapidly


• if business expands rapidly — it has to pay for expansion quickly — more wages to be paid — more materials to be
bought
• this overtrading leads to cash ow problems

4) Unexpected Events
• a cash ow forecast is only an estimate — not 100% accurate
• unexpected events can occur leading to failure of the cash ow forecast leading to cash ow problems
• for e.g delivery truck breaking down, competitor suddenly reducing down their prices
Improving Cash Flows

1) Increase Cash In ow
Improving Cash Flows

2) Decrease Cash Out ow

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