4728 Words19 Pages
Task 4 – Cash Flow Forecast and possible finance options for the purchase of fixed assets – AO4 & 5
In this task I will be completing a cash flow forecast for the six months of trading by using the figures provided in the case study. Then I will recommend to my mum that which option to choose and will state the reasons of choosing the particular option, at the end of this task.
Cash flow forecast
Cash flow forecast estimate the timing and amounts of cash inflows and outflows over a specified period of time, usually one year. It indicates to a business that whether they need to borrow, how much, when, and how it will repay the loan. A cash flow forecast will only ever be as good as the quality of the predictions
…show more content…
This is possible because the cash flow forecast will highlight the reasons of how liquidity problems may occur in place such as it could be because it has been unable to collect what it is owed regularly and on time. Also it could be that the business may has purchased too much stock which could be out of date, damaged or obsolete, therefore this may decreased the ability of earning money in the future.
It indicates to the business that when it will have insufficient funds to pay its immediate debts, so that the business could take action accordingly and it can be done either by setting up the amount limitation of credit offered to customers or if the business is holding too much stock then they can try special offers such as buy one get one free, a sale, etc.

* Obtain short-term funding – the cash flow forecast will illustrate potential problems to the management such that if the business have insufficient funds to meet its immediate debts in order to arrange short-term finance to cover this period of time. This could involve the business negotiating a bank overdraft, which will be much cheaper if pre-arranged with the bank. If this problem occurs then even the owner may wish to loan the business some funds to cover the shortfall.

* Adjust cost base – a cash flow forecast illustrates the estimated expenditure of a business over a set period of
Get Access