Cambridge IGCSE Business (0264) syllabus reference: 5.2.1
Success criteria - by the end of this topic you can:
- explain why cash and cash flow forecasts matter
- complete and interpret a cash flow forecast
- explain ways to overcome a short-term cash flow problem
Key terms
Cash flow forecast - an estimate of future cash inflows and outflows, usually month by month.
Net cash flow - cash inflows minus cash outflows in a period.
Closing balance - opening balance plus net cash flow; it becomes next month's opening balance.
Why cash matters: to pay suppliers, wages and bills on time; without cash a profitable business can still fail. The forecast shows when problems will happen, supports loan applications and helps planning.
Worked example: Completing a forecast
May: inflows $6000, outflows $18 000 - net cash flow = 6000 - 18 000 = -$12 000.
Opening balance $19 000 + net cash flow (-$12 000) = closing balance $7000, which is June's opening balance.
Overcoming a short-term cash flow problem