1. 1.3.4 Forecasting cash flows
Here are some of the terms to do with cashflow can you work them out?
PRICE SET money coming into the business
MAN TYPES money going out of the business
ASCOT REF making predictions into the future
ABLE CAN what is left in the bank
FTEN CHLA SOW difference between inflows and outflows
ECNIBG AOPLNANE amount in bank at start of month
Receipts
Payments
Forecast
Balance
1.3.4 Forecasting cash flows
BUSS1.3.4 Forecasting cash flows

2. 3.3.1 How to improve cash flow
How much will I earn?
We had haggled over my monthly salary for ages. My employer offered me £ As a challenge I said that I would be happy if he would pay me all of the numbers 1 to 100 added together. ‘OK’ he said, and we shook hands. Was he right to accept my offer? Add up all of the whole financial numbers £1 to £100 i.e. £1, £2, £3… how much will I get paid?
No calculators allowed and as quickly as possible.
100+0 = 100, 99+1 = 100, 98+2 = 100, 97+3=100 etc. There are 50 numbers between 100 and 51 so 50 x 100 = We still have to add the number 50 so we get £5050.
Or 100+1= 101, 99+2 = 101, 98+3 = 101… 50x101 = £5050
3.3.1 How to improve cash flow
How to improve cash flow

3. Filling in a cash flow forecast – your turn
You may be asked to fill in the blanks on a cash flow forecast. See if you can do it here.
Jan
Feb
Mar
Receipts (£)
8000
6000 e
Payments
Raw materials
3000 c
4000
Fixed Costs
2500
Other costs
3500
Total Payments a
10000
Net cash flow b
(2000)
(500)
Opening Balance
1000
(2500)
Closing Balance d
(3000)
a = =9500; b = = (1500); c = 8000 – ( ) = 2500;
d = (2000) + (500) = (2500); e = (500) = 9500

4. MULTIPLE CHOICE □ A Bank loan □ B Overdraft
Jan (£)
Feb (£)
Mar (£)
Cash inflow
(a)
8000
12000
Cash outflow
8500
9000
(c)
Net Cash Flow
(1500)
(b)
2000
1. Use the table to calculate (a)-(c)
2. What is the most appropriate way to deal with the negative cash flow in January
□ A Bank loan
□ B Overdraft
□ C Sell shares to friends and family
□ D Increase sales revenue
1. (a) 7000 (b) (1000) (c) B
BUSS1.3.4 Forecasting cash flows 4

5. Cash Flow Problems
Businesses need to have sufficient cash to meet day to day finances
Buying stock
Paying wages
Utility bills
Insufficient liquid cash funds may mean an inability to meet short term debts
Bank overdraft
Trade creditors
Limited cash may result in missed opportunities
How to improve cash flow

6. Cash Flow Problems
A key consideration should be whether the cash flow problem is short term or long term
A firm may be able to survive short term cash flow problems
Long term cash flow problems may be insurmountable
What were the key factors leading to the
collapse of XL airlines?
How to improve cash flow

7. Causes of cash flow problems
Credit Sales
Long payment terms
Poor credit control
Overtrading
Additional overhead and day to day expenses
Increased capital expenditure
Internal management
Stock control
Relationship with suppliers
Poor or inaccurate planning
Seasonality
Unexpected events
What advice would you give to
businesses on managing credit sales?
How to improve
cash flow

8. Improving Cash Flow Increasing the volume of the inflow of cash
Speeding up the timing of the inflow of cash
Inflows
Capital invested
Loans
Cash sales
Debtor payments
Reducing the volume of the outflow of cash
Slowing down the timing of the outflow of cash
Outflows
Loan repayments
Day to day running expenses
Interest payments
How to improve cash flow

9. Improving Cash Flow - Inflows
Using financial institutions e.g. banks
Overdraft – an arrangement with the bank allowing the business to withdraw money above the amount available
Provides some financial peace of mind
Backed by a cash flow forecast to show ability to repay
Allows flexibility
Incurs interest and possible arrangement fee
Can be ordered to repay immediately
Short-term loan – an arrangement with a bank to lend money for a set period of time
Pre agreed repayment terms
Incorporated into budget and cash flow
Interest rate may be lower than an overdraft
Interest is paid on the total value of the loan
May need to be backed by collateral
Read more at Business Link
What might a business be able to use as collateral?
Read more at Business Link
How to improve cash flow

10. Improving Cash Flow - Inflows
Factoring
Debt Factoring – the process of selling a business’ debts to a factor house at a reduced amount in order to receive immediate payment
Immediate payment of debt
Reduced risk of non payment (bad debt)
Factor house takes a % as their profit
May alter customer’s image of business
Read more at Business Link
How to improve cash flow

11. Improving Cash Flow - Inflows
How to improve
cash flow
Improving Cash Flow - Inflows
Sale of Assets
Sale of Assets – turning an obsolete asset into cash
Potentially quick cash injection
Asset must be no longer needed
Loss of future use or value of asset
Possible low value received
One off action
Sale and Leaseback – turning an asset into cash whilst still being able to use it through a lease agreement
Quick cash inflow in the short term
Reduced value of business’ assets
Larger cash outflow in the long term
What is meant by the term asset?
What assets will a business have?
Does your school have any assets it could sell?

12. Improving Cash Flow - Inflows
How to improve
cash flow
Improving Cash Flow - Inflows
Cash payments from customers
Reducing credit terms – credit terms refers to the amount of time a customer is given to pay for their goods and services. Some businesses offer customers a discount for immediate or quick payment
Quick cash inflow
Reduced risk of bad debt
May need to offer a discount
May lose customers
Credit control – the process of chasing payments from debtors (people who have bought from you on credit)
Brings cash into the business
Full amount received
May alienate customers
Administratively demanding
The Credit Control Guru

13. Improving Cash Flow - Outflows
Delaying payment to suppliers
Negotiating longer payment terms
May incur penalties
Need to maintain positive relationship
De-stocking
Reducing money tied up in stock by lowering the amount of stock held
Reduce overhead spending
Cut unnecessary expenditure
Should not have negative impact on productivity
Consider any knock on effect on sales
How to improve cash flow
Read more at Business Link

14. Can you identify some of the terminology you have used this lesson?
Cash flow terminology
TEDDABB
LACE ALL ROT
CONCERT LORD IT
SEATS
CABLE SAKE
Can you identify some of the terminology you have used this lesson?
Once you have identified all the terms write a clue to help others work out the terms.
How to improve
cash flow

15. Improving Cash Flow – what can the manager control?
Not all cash flow is within the control of managers.
Go back over this unit. Look at all of the cash inflows and cash outflows.
For each inflow or outflow consider how easy it is for the manager to control.
Give a rating from 1 to 10 with 10 being easy to control and 1 difficult to control.
Justify your ratings by stating why you believe this to be the case.
How to improve cash flow

16. Activity – Dave’s Direct Deliveries
How to improve
cash flow
Activity – Dave’s Direct Deliveries
Dave started his courier business 3D Ltd 5 years ago. It currently operates with a fleet of 8 trucks and 2 bikes. Over the past year however things have got tough: rising fuel prices, increased road tax and falling customer numbers have meant he has had to reduce his drivers from 8 to 5, all of whom are paid on a weekly basis.
Dave already has a bank loan for £50000, the repayment on which has also gone up recently due to a rise in interest rates. Last month two of his regular customers cancelled their contracts, one of whom still owes him £6000. Both explained that they were moving to cheaper competitors who offered 45 day payment terms compared to Dave’s 30 days. Dave’s wife Doris helps out on a part time basis in the office where she answers the phone, sends invoices and keeps the financial records of payments and expenditure.
Dave is worried, his bank balance is nearly zero and if things don’t improve in the next 3 months he is anxious he will have serious cash flow problems and not be able to meet his day to day running costs.
Identify the possible steps Dave could take to help solve his cash flow problem.
For each step identify an argument for and against taking that step.
Recommend 3 proposals to Dave. You should prioritise and justify your proposed solutions.