The document discusses cash flow forecasting and cumulative cash flows. It provides guidance on estimating monthly cash inflows and outflows to determine the net and cumulative cash flow. It discusses key aspects like forecasting revenue and costs. The objectives are outlined as understanding what a cash flow forecast is, how cash flow can be improved, and being able to create an accurate cash flow forecast. Steps are provided to forecast cash flow including accurately predicting sales, payment timing from customers, and monitoring expenses. An example cash flow table is included and filled out month by month. [/SUMMARY]

1. CUMULATIVE CASH FLOWS

2. Specification detail
Estimating monthly cash inflows
and outflows to determine net and
cumulative cash flows

3. WHAT WE KNOW SO FAR
• Forecasting revenue
–This looks at how many products you think you’ll sell
and at what price you think you’ll sell them
• Fixed and variable costs
–This will allow you to accurately predict how high
your costs will be

4. LESSON OBJECTIVES
• To know what a cash flow forecast is
• To understand how cash flow can be improved
To be able to create a cash flow forecast
•
accurately.

6. FORECASTING CASH FLOW
•This is very difficult, to be successful you need
to:-
–Accurately predict monthly sales revenues
–Predict when customers will pay for the goods
–Careful allowance for operating costs
–Careful monitoring of cash outflows when purchasing
assets, such as land.
•The level of accuracy is very hard to achieve and
is the key reason why failure is high amongst new
businesses

7. A CASH FLOW FORECAST
Figures JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Cash at the (550 (4150
100 (550) 1850 2850 (900) 2650 2400 1200 3150 7450
start ) )
Cash in 0 1000 3000 3000 3000 5000
300
6000 8000 8000 10000 10000
0
Cash Out 650 1000 600 2000 6750 1450
325
12550 2650 6050 5700
570
0 0
NET Cash 430
(650) 0 2400 1000 (3750) 3550 (250) (6550) 5350 1950 4300
flow 0
Cumulative 285 240 (4150
(550) (550) 1850 (900) 2650 1200 3150 7450 11750
cash 0 0 )
Cut out and stick in your example of this table
We will work through the figures for a year and complete this
table

8. JANUARY
• You start with £100 in your bank account.
Your business is new, so you do not sell
•
anything this month
You spend £250 on a launch party for your
•
business
• You pay £50 rent, £50 gas/water/electricity
• You pay your one employee £300

9. FEBRUARY
• Your sales revenue adds up to £1000
• You pay £50 rent, £50 gas/water/electricity
• You pay you one employee £300
• You pay £500 for an advertising campaign
• Your raw materials cost £100

10. MARCH
• You pay £50 rent, £50 gas/water/electricity
• You pay you one employee £300
• Your raw materials cost £200
• Your sales revenue adds up to £2500
• You sell some advertising space for £500

11. APRIL
• You pay £50 rent, £50 gas/water/electricity
• You pay you two employees £600 in total
• Your raw materials cost £300
• You buy a new van, costing £1000
• Your sales revenue adds up to £3000

12. MAY
You pay £50 rent, £50 gas/water/electricity
•
You pay you two employees £600 in total
•
Your raw materials cost £300
•
Your van is in an accident, you pay £500 to fix it
•
You now pay for insurance on your van and
•
buildings £250
You buy new machinery costing £5000
•
Your sales revenue adds up to £3000
•

13. JUNE
• You pay £50 rent, £50 gas/water/electricity
• You pay you two employees £600 in total
• Your raw materials cost £500
You pay for insurance on your van and
•
buildings £250
• Your sales revenue adds up to £5000

14. JULY
• You pay £50 rent, £50 gas/water/electricity
• You pay you four employees £1600 in total
• Your raw materials cost £300
• You buy a new van costing £1000
You now pay for insurance on your van and
•
buildings £250
• Your sales revenue adds up to £3000

15. AUGUST
• You pay £50 rent, £50 gas/water/electricity
• You pay you four employees £1600 in total
• Your raw materials cost £600
You now pay for insurance on your van and
•
buildings £250
• You buy a new factory costing £10,000
• Your sales revenue adds up to £6000

16. SEPTEMBER
You pay £100 rent, £100
•
gas/water/electricity
• You pay you four employees £1600 in total
• Your raw materials cost £600
You now pay for insurance on your van and
•
buildings £250
• Your sales revenue adds up to £8000

17. OCTOBER
You pay £100 rent, £100 gas/water/electricity
•
You pay you eight employees £4000 in total
•
Your raw materials cost £600
•
You buy another new van costing £1000
•
You now pay for insurance on your van and
•
buildings £250
Your sales revenue adds up to £8000
•

18. NOVEMBER
You pay £100 rent, £100
•
gas/water/electricity
• You pay you eight employees £4000 in total
• Your raw materials cost £1000
You now pay for insurance on your van and
•
buildings £500
• Your sales revenue adds up to £10,000

19. DECEMBER
You pay £100 rent, £100
•
gas/water/electricity
• You pay you eight employees £4000 in total
• Your raw materials cost £1000
You now pay for insurance on your van and
•
buildings £500
• Your sales revenue adds up to £10,000

20. Figures JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Cash at (4150
100 (550) (550) 1850 2850 (900) 2650 2400 1200 3150 7450
the start )
Cash in 0 1000 3000 3000 3000 5000 3000 6000 8000 8000 10000 10000
Cash Out 650 1000 600 2000 6750 1450 3250 12550 2650 6050 5700 5700
NET Cash
(650) 0 2400 1000 (3750) 3550 (250) (6550) 5350 1950 4300 4300
flow
Cumulative 285 (4150
(550) (550) 1850 (900) 2650 2400 1200 3150 7450 11750
cash 0 )

21. NEGATIVE CASH FLOW
This is when your cash out is greater than
•
your cash in
•In some cases it may mean you are operating
in the RED
If like our business, this only happens for a
•
short period, the bank will generally let you
have an overdraft.
•If it lasts for a long time, you would need to
increase your cash flow

22. IMPROVE YOUR CASH POSITION
Cut stock levels
•
Increase credit from suppliers
•
Reduce credit to your customers
•
Use p112 to add an explanation for these
•
What happens if you cannot improve your cash position……
•
Insolvency – the inability to repay debts as they become due
•

23. PLENARY
• Please write the learning objectives for me
• On thing you:
• know
Understand
•
can do
•

24. CASH FLOW TABLES
● Luke Warm Cash flow: Here
● Lee King Cash flow: Here