Cash Flow Forecasts
Business: Cambridge International GCSE (2027 Exams), topic 5.2.2
Cash Flow Forecasts
Cash flow forecasts are a business’ prediction of how much money will come in and out of the business in a given amount of time.
Cash flow forecasts
- Businesses will estimate all the possible sources of cash inflows (e.g. sales) and cash outflows (rent, salaries, costs of production).
- They may be able to forecast these inflows and outflows using past data on sales and costs, as well as using market research.
Forecasting liquidity problems
- It is important for businesses to forecast this accurately to avoid liquidity problems.
- A liquidity problem is when a business runs out of cash in the short-term. They won’t have enough cash to pay rent and peoples’ wages.
- To solve a liquidity problem, a business has to reduce (or delay) cash outflows and increase (or get sooner) cash inflows.
Test yourself on Cash Flow Forecasts
How can businesses solve liquidity problems?
What can businesses avoid by forecasting cash flow accurately?
How can businesses forecast cash inflows and outflows?