Preparation of a cash flow forecast

Poor cash flow

The problem a poor cash flow can create for a business is they might run out of money and not pay their bills on time

Wooden Wonders credit control

Wooden wonders can minimize these cash flow problems through a better control by making sure they are paid on time and make payments as late as possible.

Situation 1

In the first 3 months January, February and March Wooden Wonders had a poor cash flow. As the sales increased in the following months Wooden Wonders have a positive cash flow and have no more problems with its cash flow so that if the business continues in this way it will run effectively.

Situation 2

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

Although the rent is reduced to £1,500 Wooden Wonders have to pay £1,000 wages.

In January Wooden Wonders did not have cost of sales, so this was a good start for the business but in February and March the net cash flow was negative, but this did not harm the cash flow because they had profit to back them up from January, in the following months the cash flow was positive, this means if the business continues like that it will run effectively.  

Situation 4

The cash flow for this situation is similar to the one I mentioned above except in May a customer goes busted and didn’t pay his money, so this affected the cash flow, by leaving the net cash flow negative. So if the business stays like that, it will earn back its losses in the next few months and have a positive cash flow.

Situation 5

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.