Cash Flow Forecasts GCSE Business Studies Unit 2

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Cash Flow Forecasts GCSE Business Studies Unit 2 Developing a Business Learning Outcomes Students should be able to: explain the purpose of cash flow forecasts, in the context of both forward planning and review analyse the importance of

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Cash Flow Forecasts GCSE Business Studies

Unit 2
Developing a Business

Learning OutcomesStudents should be able to: explain the purpose of cash flow forecasts, in the context of both forward planning and review
analyse the importance of cash flow to a business
complete parts of a cash flow forecast
calculate and interpret a simple cash flow forecast
analyse the consequences of incorrect forecasting Images © thinkstockphotos.co.uk

Cash Flow Forecast A cash flow forecast is a prediction of the money likely to come into and go out of a business over a period of time Images © thinkstockphotos.co.uk

Purpose of a Cash Flow Forecast It enables the owner or manager to plan the business’s expenditure
Perhaps a machine has to be replaced during the year while other expenses such as electricity always have to be paid. Recording all forecasted expenditure enables the business to see if these payments would result in cash shortages at certain times. Images © thinkstockphotos.co.uk

Purpose of a Cash Flow Forecast It shows the amount required and when it is needed
Any business wishing to borrow money will see from the cash flow forecast exactly how much needs to be borrowed and exactly when the extra cash is required. This prevents the payment of interest for longer than necessary. Images © thinkstockphotos.co.uk

Purpose of a Cash Flow Forecast It shows when loans could be repaid
Presentation of a cash flow forecast would show the bank or other lender if, and when, the business would be able to repay the loan. This would encourage the bank to give a loan. Images © thinkstockphotos.co.uk

Purpose of a Cash Flow Forecast It inspires confidence and acts as a check on spending
A cash flow forecast gives the owner confidence, and shows if the business’s financial plans are being maintained. Images © thinkstockphotos.co.uk

Purpose of a Cash Flow Forecast It supports the business’s business plan
A cash flow forecast is required as part of the business plan. Images © thinkstockphotos.co.uk

Purpose of a Cash Flow Forecast It sets targets for the business
At the end of the period, the targeted figures can be compared with what actually happened. The difference between what actually happened in the business and the forecasted performance is known as the variance. Owners would have to investigate the cause of large variances. Images © thinkstockphotos.co.uk

Consequences of Incorrect Forecasting Shortage of working capital – wages or supplies may not be paid
It may cause capital to be unused
Some of the business’s assets may have to be sold
Purchases may be made at the wrong time
Trading opportunities may be lost
Business may have to close
Banks may not lend money
Targets may not be met
Business may need a loan/overdraft Images © thinkstockphotos.co.uk

Pupil Activity Working individually you have twenty minutes to answer the following past paper questions:

2011 Question 3 a, b & d
2013 Question 3 a - c
2014 Question 3 a - c
2016 Question 3 a - c Images © thinkstockphotos.co.uk

Learning CheckCan you: explain the purpose of cash flow forecasts, in the context of both forward planning and review
analyse the importance of cash flow to a business
complete parts of a cash flow forecast
calculate and interpret a simple cash flow forecast
analyse the consequences of incorrect forecasting Images © thinkstockphotos.co.uk

Cash Flow Forecasts GCSE Business Studies Unit 2

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