1 Using a cashflow forecast L/O: demonstrate an understanding of cash flow

2 Learning ObjectiveOutcomeWho?Keywords Explain what cash flow means  I can explain the difference between cash and profit ALL D (AO1)  Cash flow  Cash inflow  Cash outflow  Debtors  Credit sales  Net monthly cash flow  Opening Balance  Closing balance Be able to structure and measure cash flow in a business  I understand the structure of a typical cash flow forecast  I understand how a profitable business can run out of cash MOST C-B (AO2 & 3) Evaluate ways in which a firm’s cash flow might be improved and problems overcome.  I am able to evaluate the methods that business can use to overcome cash flow problems. SOME A (A04) ’

3 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.

4 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 to pay bills AIM is to have a positive cashflow or at least a balance.

5 The principle of cash flow Cash too high Cash OK Cash too low Revenue in Expenses out

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

7 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

8 Example… Click Here

9 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

10 A basic cashflow diagram Jan £ Feb £ Mar £ Apr £ May £ June £ Opening balance 5,000 7,000 4,000 6,00012,00015,000 Add inflows20,00022,00018,00020,00023,00018,000 Total25,00029,00022,00026,00035,00033,000 Less outflows18,00025,00016,00014,00020,00033,000 Closing balance 7,000 4,000 6,00012,00015,000 0

11 MAKenfBEM 6:30 Points raised……