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Preparation of a cash flow forecast

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Preparation of a cash flow forecast Cash flow forecast Cash flow relates to the amount of money received and spent in a given period. Cash flow problems occur when the amount spent is greater than the amount received. You may have cash flow problems from time to time-especially just before pay day-when you are short of cash to buy or do what you want. Unless you want to get into debt you need to reduce your spending until you get more money. Businesses can also have cash flow problems. This may be because some people who owe them money have not paid their bills when they should. The business then does not have enough money in the bank to pay the bills it has received from its suppliers. Businesses use cash flow forecast to predict how much money they should have in the bank at any particular time, usually at the end of a month. This means listing and adding up all their expected cash inflows. Cash inflow Cash inflows are money received by the business for variety of reasons such as the capital, which means the money that the owner puts into the business at the start and sales. ...read more.


sales �1,750.00 �2,000.00 �2,250.00 �2,500.00 �2,750.00 Rent �2,000.00 �2,000.00 �2,000.00 �2,000.00 �2,000.00 �2,000.00 Insurance �50.00 �50.00 �50.00 �50.00 �50.00 �50.00 Electricity �50.00 �50.00 �50.00 �50.00 �50.00 �50.00 Total outflows �2,100.00 �3,850.00 �4,100.00 �4,350.00 �4,600.00 �4,850.00 Net cash flow �1,400.00 �150.00 �400.00 �650.00 �900.00 �1,150.00 Opening balance �5,000.00 �6,400.00 �6,550.00 �6,950.00 �7,600.00 �8,500.00 closing balance �6,400.00 �6,550.00 �6,950.00 �7,600.00 �8,500.00 �9,650.00 Wooden Wonders has given raw materials suppliers one month credit, so this made the business run better and make a positive cash flow, as you can see above the total inflows is more then the total outflows, which definitely means that the net cash flow is the profit which remains to the business, from the starting cost of �5,000 in January to �9,650 June which is �4,650 profit in 6 months, if the business continues this way it will run efficiently. Situation 3 January February March April May June Inflow Sales �3,500.00 �4,000.00 �4,500.00 �5,000.00 �5,500.00 �6,000.00 Total inflow �3,500.00 �4,000.00 �4,500.00 �5,000.00 �5,500.00 �6,000.00 Cost of sales 0 �1,750.00 �2,000.00 �2,250.00 �2,500.00 �2,750.00 Rent �1,500.00 �1,500.00 �1,500.00 �1,500.00 �1,500.00 �1,500.00 Insurance �50.00 �50.00 �50.00 �50.00 �50.00 �50.00 Wages �1,000.00 �1,000.00 �1,000.00 �1,000.00 �1,000.00 �1,000.00 Electricity �50.00 �50.00 �50.00 �50.00 �50.00 �50.00 Total ...read more.


Cost of sales �0.00 �1,750.00 �2,000.00 �2,250.00 �2,500.00 �2,750.00 Rent �1,500.00 �1,500.00 �1,500.00 �1,500.00 �1,500.00 �1,500.00 Insurance �50.00 �50.00 �50.00 �50.00 �50.00 �50.00 Electricity �50.00 �50.00 �50.00 �50.00 �50.00 �50.00 Total outflows �2,600.00 �4,350.00 �4,600.00 �4,850.00 �5,100.00 �5,350.00 Net cashflow -�2,600.00 -�4,350.00 -�1,100.00 -�850.00 -�600.00 �2,650.00 Opening balance �5,000.00 �2,400.00 -�1,950.00 -�3,050.00 -�3,900.00 -�4,500.00 closing balance �2,400.00 -�1,950.00 -�3,050.00 -�3,900.00 -�4,500.00 -�1,850.00 Wooden Wonders customers demand that they be given two months credit this has harmed the cash flow and made a negative cash flow for the company. This is because the money that is going out (out flows) is more than the sales, which kept the net cash flow negative for the first five months. In June the net cash flow changed positively, because the customer that went busted paid the �3000 back, but this still didn't make a positive cash flow. This is still a loss for Wooden Wonders because the closing balance for June is less than the opening balance for January. If the business stays like that, it might take a long time to earn back the money the business started with, which is the opening balance and in the next few months the cash flow might get better. ...read more.

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