A-Level AQA Business Revision Unit 1(Part 14) : Cash Flow

Cash - All the money involved with the business

Cash flow - The circulation of money in and out of the business

Cash inflow - Money coming into the business

Cash outflow - Money going out of the business

Cash flow forecast - The expected sums of money that come into and exit the business

A cash flow forecast is important for business. It outlines targets that the business can try to achieve and helps them to stay on track

Benefits of cash flow forecasts are:

- Deficitis/losses can be anticipated and arrangements made

- Problem periods can be preparedfor

- Review timings, reciepts, payments, and then make changes

- Essential for application of loans or overdraft

The limitations are:

- Mistakes can be made in preparing the forecast, leading to poor decisions

- Unexpected cost rises can lead to innacuracies

- Wrong assumptions can be made in estimating sales

- Shocks to the economy may occur, resulting in difficult decisions as the entrepeneur may stick to the forecast

- Customers may not pay on time

- Certains costs may not be included

Deficit - When there is a negative closing balance at the end of the month

In order to deal with a deficit, a business can:

- Arrange an overdraft

- Arrange a short-term loan

- Delay payment of some bills (trade credit)

- Spread payments over a longer time period