Cash Flow Forecasts and

working capital
SAIMAH SAYED
Problems faced by business if no cash

 Being unable to Workers, suppliers

 Production of goods and services will stop
 Business may be forced to liquidation- selling up everything to pay debts
Cash flow cycle
What cash flow is not

Profit and cash are not same.

Profit = Sales Revenue – Total cost ( we consider cash and credit sales both)
Cash = Cash inflow – Cash outflow (only cash)
Can profitable business run out of cash ?

Allowing customers too long a credit period

Purchasing too many non current assets
Expanding too quickly
Keeping high level of inventories
Importance of cash flow forecasts

How much money is available for paying bills

How much cash the bank might lend to the business to avoid insolvency
Whether the business is holding too much of cash which can be put to better use
Uses of cash flow forecasts

Starting up a business
Running an existing business
Keeping the bank manager informed
Managing cash flow
How to solve short-term cash flow
problem

Increasing bank loan

Delaying payment to suppliers
Asking debtors to pay back quickly
Delay or cancel purchase of fixed assets