Cash Flow Forecasting

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A cash flow forecast is ...

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A document showing the predicted flow of cash into and out of a business over a period of time, usually 12 months.

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Cash flow forecasting is important because ...

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It allows businesses to ensure they have a healthy cash balance to meet financial commitments, identify shortfalls, and make plans to prevent problems.

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Cash inflows are...

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Money coming into the business, including cash sales, credit sales, loans, capital, sale of assets, and bank interest received.

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Cash outflows are ...

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Money going out of the business, including cash purchases, credit purchases, purchase of assets, VAT, general expenses, bills, rent/rates, salaries, and wages.

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Net Cash Flow is...

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Net Cash Flow is the difference between Cash Inflows and Cash Outflows (Inflows – Outflows).

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The opening balance is ...

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The amount of cash expected to be in the bank at the start of the month. It comes from the closing balance of the previous month.

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The closing balance is ...

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The amount of cash expected to be in the bank at the end of the month. It is calculated by adding Net cash flow and opening balance.

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Liquidity in business finance refers to ...

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How able the business is to meet its short-term cash payments.

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Insolvency refers to ...

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a situation when a firm is unable to meet its short-term cash payments.

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Total inflows and total outflows are calculated as...

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Total inflows are the sum of all inflows in a specific month, and total outflows are the sum of all outflows in a specific month.