Topics Covered Business Costs Revenue Profit Expenditure Break Even Analysis Budgeting Cash Flow Forecast Profit & Loss Balance Sheet Maximising Profits

Re-cap: Break-even You have 20mins to look over your notes on break-even analysis. = 20mins

Re-cap: Break-even You have 30mins to complete a mock exam on break-even analysis. = 30mins

LO1) To describe the purpose of a cash flow forecast UNIT TITLE: Unit 2:Finance for Business LESSON TITLE: Cash Flow Forecasting LEARNING AIM: B COMPETENCY FOCUS: Key Skills (L5): you will be able to develop your numeracy skills to calculate financial transactions of a business and to interpret financial data. Learning Objectives By the end of the lesson, you should be able to… LO1) To describe the purpose of a cash flow forecast LO2) To explain the sources of cash inflows and cash outflows LO3) To complete a cash flow forecast from given information LO4) To analyse a business’ finances based on cash flow information

What is cash flow? CASH FLOW – the movement of money into and out of a business bank account INFLOWS refers to money received by the business OUTFLOWS refers to money paid out by the business EXAMPLES: Sales revenue Capital Loans Grants EXAMPLES: Purchases Rent & Rates Wages & Salaries BUSINESS

Cash Flow The difference between the inflows and the outflows is called the net cash flow. Positive net cash flow – Inflows are greater than out flows Negative net cash flow – Inflows are not enough to cover out flows Cash Balance – the amount of money in a business’ account at any particular time

Cash Inflows Money coming IN to the business Cash can come in to the business in various ways: - Sales - Capital - Loans These can be regular (expected) and irregular

Cash Outflows Money going OUT of the business Cash can flow out of the business in various ways: - Purchases - Wages - Loan repayments These can be regular (expected) and irregular

Cash Inflows/Outflows For each of the following, say whether you think they are cash inflows or cash outflows. Payment of taxes Government Grants Wages Interest received on savings Loan repayments Buying new machinery Loans Sales Revenue VAT payments Rent received from premises owned

What is a ‘cash-flow forecast’? It is a useful technique that a business can use to manage its money and to predict what their income and outgoings might be over the next 12 months.

Discuss in groups and write your answers on the sugar paper provided. Cash-flow Forecast Why do you think cash-flow forecasts are useful to managers in a business organisation? Discuss in groups and write your answers on the sugar paper provided.

Building a Cash Flow Forecast To build a cash-flow forecast you need to have the following information Opening Balance - the amount of money in the business’ bank account at the start of the period Income per Period – the amount of money expected to go into the bank account in that month Expenditure per Period – the amount of money expected to leave the bank account in that month Closing Balance – the amount expected to be in the bank account at the end of the period