1. Cash Flow Forecasting

2. Lesson objectives Understand what cash flow is and be able to produce a cash flow forecast Learning outcomes To be able to describe cash flow forecast (E) To accurately construct a cash flow forecast (C) To evaluate the importance of cash flow for a business (A)

3. So what is Cash flow? Cash flow is the flow of money into and out of a business. Cash flow is used to work out if a business has enough cash coming in on a day to day basis in order to cover the cash it must pay out.

4. So what is Cash flow? £ £ Where does cash come from? What would a business spend cash on?

5. Net cash flow is easy to work out! NET CASH FLOW Cash inCash out We call these Inflows! We call these Outflows!

6. Problems with poor cash flow If there is not enough cash, suppliers may not get paid. Staff too, and they may be unmotivated and feel resentment. Creditors may insist on stricter terms in the future or take legal action.

7. Does it help? Businesses can produce a cash flow forecast to anticipate any problems The business can predict and react to these potential issues They will still need to be careful in case of any unexpected cash flows

8. Cash flow forecast Need to plan enough cash to survive Cash flow forecast helps plan flows in & out £JanFebMarAprMay Inflows Outflows Net Cash flow Opening Balance Closing Balance Cash at start of month Cash at end of month Closing Balance = Opening Balance + Net Cash Flow Inflows - Outflows

9. Inflows What inflows might a business have? How can we calculate our business inflows?

10. Outflows What outflows would we have to consider in a business? – Rent – Equipment and supplies – Running Costs (E.g Utility bills such as heating) – Wages

11. Break Even Point The Break Even Point is when INFLOWS = OUTFLOWS

12. Cash Flow Case Study Cash Flow Forecast Using the given figures, complete the cash flow forecast for the company opening in January and assume the January opening balance is 0.

13. Role Play 1.Get into groups of 3. 2.You will be operating as a small business. 3.Each business will start with a set amount of money (all different) which will be your opening balance 4.Using paper provided spend 5 minutes creating a product which you will sell. You must transform the paper into a product before being able to trade it. 5.You will then have 2 minutes to trade. 6.Record your income and expenditure over this time so make sure you are keeping track of what you have bought and sold. 7.Each member of the group should complete a cash flow. 8.In the next 2 minutes you will be trading any remaining stock you have along with what you have purchased. We will repeat this until we finish our cash flow forecast in the fourth month.

14. Plenary: Evaluation What went well for your business? Did you manage to keep track of your cash flow? Did you ever encounter financial difficulty? How could you have improved the cash flow of your business? Were the businesses who started with more cash the ones who ended up with the most at the end? Can you explain why this may have happened?