business studies

The cash flow forecast looks at what is the most likely income and expenditure, so from that you can extract likely net profit, gross profit, turnover. These will help to apply for a loan, also help in giving budgets to aim for, and targets for sales or production depending on the nature of the business.A cash flow is critical because even profitable business can go bankrupt if they do not have enough cash on hand to pay suppliersHaving entered all the known and expected receipts onto our cash flow forecast and all the known and expected payments you now have an overall picture of what the cash position is for the next 13 weeks for your business. You can see where there are likely to be cash shortfalls and surpluses. With this information you can be proactive and plan your way out of the shortfall rather than being reactive and making bad short term decisions. You have time to make decisions.
A cash flow forecast indicates the likely future movement of cash in and out of the business. It's an estimate of the amount of money you expect to flow in (receipts) and out (payments) of your business and includes all your projected income and expenses. A forecast usually covers the next 12 months, however it can also cover a short-term period such as a week or month. The concept of cash flow is quite easy:Cash flow forecasts can help predict upcoming cash surpluses or shortages and help you to make the right decisions. It can help in tax preparation, planning new equipment purchases or identifying if you need to secure a small business loan.

By including every case scenario in your cash flow forecast you will see how your business will cope if your business hits tough times or does better than expected. Prior warning allows you to work out solutions to anticipated temporary cash shortfalls or arrange short-term investments for temporary cash flow