Cash Flow Forecasts GCSE Business Studies Unit 2

Transcript:Cash Flow Forecasts GCSE Business Studies Unit 2:
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 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 Purpose of a Cash Flow Forecast It sets targets for the