1.6 cummulative cash flow
TRANSCRIPT
CUMULATIVE CASH FLOWS
Estimating monthly cash inflows
and outflows to determine net and
cumulative cash flows
Specification detail
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
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.
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
A CASH FLOW FORECAST
Cut out and stick in your example of this table
We will work through the figures for a year and complete this
table
Figures JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Cash at the start
100(550
)(550) 1850 2850 (900) 2650 2400
(4150)
1200 3150 7450
Cash in 0 1000 3000 3000 3000 5000300
06000 8000 8000 10000 10000
Cash Out 650 1000 600 2000 6750 1450325
012550 2650 6050 5700
5700
NET Cash flow
(650) 0 2400 1000 (3750) 3550 (250) (6550) 5350 1950 4300430
0
Cumulative cash
(550) (550) 1850285
0(900) 2650
2400
(4150) 1200 3150 7450 11750
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
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
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
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
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
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
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
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
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
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
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
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
Figures JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Cash at the start
100 (550) (550) 1850 2850 (900) 2650 2400(4150
)1200 3150 7450
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 flow
(650) 0 2400 1000 (3750) 3550 (250) (6550) 5350 1950 4300 4300
Cumulative cash
(550) (550) 1850285
0(900) 2650 2400
(4150)
1200 3150 7450 11750
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
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
PLENARY
•Please write the learning objectives for me
•On thing you:
• know
•Understand
•can do
CASH FLOW TABLES
● Luke Warm Cash flow: Here
● Lee King Cash flow: Here