P3: Explain How John Adams 'Cash Flow Forecast'

Analyse the cash flow and highlight any problems that are evident such as a shortage of cash and any other cash flow problems his business might experience. (M1)
In P3, a cash flow forecast for John Adams was created. A cash flow forecast is a simple statement showing opening balance, cash in, cash out and closing balance. Cash flow forecast are usually compiled on a month by month basis, for up to twelve months ahead. The exact contents of an individual firm’s cash flow forecast will depend on the nature of its cash receipts and expenditure. However the basis structure for a cash flow forecast shows, the opening balance; which is the balance from the previous year, also known as the balance brought forward and the closing balance which how much money John Adams has at the end of the month. For example, the closing balance of £925.00 at the end of January becomes the
Offering trade credit can help win sakes and retain customers. However credit sales do not necessarily create cash problems, as long as John Adams plans for the delay in payment for sales. The longer the credit period offered to customers, the longer it will before cash flows into the business. The wider the gap between having to pay expenses involved in meeting orders and receiving money from sales, the greater the risk of cash flow turning negative. John Adams selling on credit may also struggle if customers fail to pay by the date agreed, or go out of business without paying all.
Overtrading is also another cash flow problem he may face. Rapid expansion without securing sufficient finance can also lead to cash flow problems. The costs of materials and labour will be increasing and will usually need to be covered well in advance of payment being received from customers, especially if they have been granted generous credit terms. The wider the gap between cash outflows and cash inflows the greater the risk of experiencing cash flow