gcse business studiescash flow cash flow and cash flow forecasts click here for part 1 click here...
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Cash Flow and Cash Flow Forecasts
Click here for Part 1
Click here for Part 2
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Cash Flow and Cash Flow Forecasts
What they are….
Why they matter….
Who uses them….
Part 1
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Outcomes:
All will be able to define Cash Inflows and Cash Outflows.
Level 1
Grade E
Knowledge skills.Most will be able to explain the concept of Net Cash Flow.
Level 2
Grades D to C – Explanation Skills.
Some will be able to advise actions that should be taken having studied a Cash Flow Forecast.
Level 3
Grades B to A* - Advising Skills.
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• Imagine it is December 1st
• You have £70 in your bank account on Dec 1st• In the first 2 weeks of December, you SPEND £60 on presents
for your friends• On Christmas Day, your favourite auntie gives you £50 as a gift
and your elder sister gives you £50. You put this £100 in the bank as soon as you can NOW USE THIS INFORMATION TO ANSWER THE FOLLOWING QUESTIONS ….
DECEMBER
S S M T W T F
1 2
3 4 5 6 7 8 9
10 11 12 13 14 15 16
17 18 19 20 21 22 23
24 25 26 27 28 29 30
31
BANK£70£60
Starter – The concept of cash movements!
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Starter – The concept of cash movements!
Q1. What will your bank balance be at the CLOSE of December?
Q2. What was your OUTFLOW of cash in the month?
Q3. What were your INFLOWS of cash in the month?
Q4. If your “Net Cash Flow” is found by INFLOWS minus OUTFLOWS of cash, what was your NET CASH FLOW in December?
Q5 What is your bank balance at the OPENING of January (Jan 1st)?
Show answers
£110
£60
£100
+ £40
£110
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£50
• Imagine it is December 1st
• You have £30 in your bank account on Dec 1st. You have an overdraft limit of £50 on your account
• In the first 2 weeks of December, you SPEND £60 on presents for your friends
• On Christmas Day, you get no money as gifts – everyone bought you a present NOW USE THIS INFORMATION TO ANSWER THE FOLLOWING QUESTIONS ….
DECEMBER
S S M T W T F
1 2
3 4 5 6 7 8 9
10 11 12 13 14 15 16
17 18 19 20 21 22 23
24 25 26 27 28 29 30
31
BANK£30£60
Starter – The concept of cash movements!
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Q1. What will your bank balance be at the CLOSE of December ?
Q2. What was your OUTFLOW of cash in the month ?
Q3. What were your INFLOW of cash in the month ?
Q4. If your “Net Cash Flow” is found by INFLOWS minus OUTFLOWS of cash, what was your NET CASH FLOW in December ?
Q5 What is your bank balance at the OPENING of January ( Jan 1st)?
Starter – The concept of cash movements!
- £40
£70
Nil
£70
- £40
Show answersIt’s a good job you had an overdraft set up on your bank account!
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December January FebruaryCASH INFLOWS
Income from chores. ZERO
Income from gifts. £100
TOTAL INFLOWS (A) £100
CASH OUTFLOWS
Spending on others. £60
Spending on self. ZERO
TOTAL OUTFLOWS (B) £60
Net Cash Flow for month (C):( found by A MINUS B)
£40
Opening Bank Balance (D) ( Start of month)
£70
Closing Bank Balance ( End of month). Found by (C) plus (D)
£110
A Cash Flow Table…..Using Example 1
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A Cash Flow Table…..Using Example 2
December January FebruaryCASH INFLOWS
Income from chores. ZERO
Income from gifts. ZERO
TOTAL INFLOWS (A) ZERO
CASH OUTFLOWS
Spending on others. £70
Spending on self. ZERO
TOTAL OUTFLOWS (B) £70
Net Cash Flow for month (C):( found by A MINUS B)
(-£70)
Opening Bank Balance (D) ( Start of month)
£30
Closing Bank Balance ( End of month). Found by (C) plus (D)
(-£40) OVERDRAWN !
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Cash Flow Forecasting
If a person or a business wants a clearer picture of when their best and worst months for cash are, they will try and ESTIMATE their monthly inflows and outflows of cash.
They use the cash flow table to help them.
RESULT- the cash flow forecast – tells you which months you may need help from your bank with an overdraft.
Let’s have a go at a cash flow forecast for January using example 1….
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Activity – January Cash Flow Estimate• Imagine it is JANUARY 1st.
• You have £110 in your bank account on Jan 1st.
• By January 31st, you ESTIMATE you will have earned £20 for doing chores around the house. FILL THIS IN ON THE CASH INFLOWS.
• In the first 2 weeks of January, you ESTIMATE that you’ll
SPEND £60 on a birthday present for your mom. FILL THIS IN ON THE CASH OUTFLOWS.
• You also ESTIMATE that you’ll spend £50 on yourself on clothes. FILL THIS IN ON THE CASH OUTFLOWS.
NOW USE THE INFORMATION YOU HAVE ADDED TO THE CASH FLOW CHART TO WORK OUT and FILL IN:
(A) The predicted NET CASH FLOW for January.(B) The predicted CLOSING BANK BALANCE for January ( and therefore the opening bank balance for February )….
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Estimating January - Cash Flow Table …..Using Example 1
December January FebruaryCASH INFLOWS
Income from chores.ZERO £______
Income from gifts. £100 ZERO
TOTAL INFLOWS (A) £100 £______
CASH OUTFLOWS
Spending on others.£60 £______
Spending on self. ZERO £______
TOTAL OUTFLOWS (B) £60 £______
Net Cash Flow for month (C):( found by A MINUS B) £40
(-£______ ) ( a minus because
outflows are more than inflows)
Opening Bank Balance (D) ( Start of month) £70 £110
Closing Bank Balance ( End of month). Found by (C) plus (D)
£110 £______
Show answers
20
20
60
50
11090
20
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Quick check ….
a) How do we find the closing bank balance for a month?
b) How can we decide what the opening bank balance is for the following month?
What are cash inflows ?
What are cash outflows?
How do we find NET CASH FLOWS for a
month ?
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• In a minute, we are moving on to ESTIMATE your cash flow forecast for February.
• As you only have £20 in the bank at the start of February, what FINANCIAL advice do you think a good business person or a bank manager would give you about your cash flow situation in February?
Quick check ….
Advice could include ….
Watch your spending! Try and do more chores to earn more money! Get a part time job around school !
Advice could include ….
Watch your spending! Try and do more chores to earn more money! Get a part time job around school !
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• Imagine it is FEBRUARY 1st
• You have £20 in your bank account on Feb 1st.
• By February 29th, you ESTIMATE you will have earned £30 for doing more chores around the house. FILL THIS IN ON THE CASH INFLOWS.
• In the first 3 weeks of January, you ESTIMATE that you’ll SPEND
£60 on a birthday present for your dad. FILL THIS IN ON THE CASH OUTFLOWS.
• You also ESTIMATE that you’ll spend £10 on yourself on hair care. FILL THIS IN ON THE CASH OUTFLOWS.
NOW USE THE INFORMATION YOU HAVE ADDED TO THE CASH FLOW CHART TO WORK OUT and FILL IN:
(A) The predicted NET CASH FLOW for FEBRUARY.(B) The predicted CLOSING BANK BALANCE for FEBRUARY ( and
therefore the opening bank balance for MARCH )….
Activity – February Cash Flow Estimate
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December January FebruaryCASH INFLOWS
Income from chores.ZERO £20
Income from gifts. £100 ZERO
TOTAL INFLOWS (A) £100 £20
CASH OUTFLOWS
Spending on others.£60 £60
Spending on self. ZERO £50
TOTAL OUTFLOWS (B) £60 £110
Net Cash Flow for month (C):( found by A MINUS B) £40
(-£90) ( a minus because
outflows are more than inflows)
Opening Bank Balance (D) ( Start of month) £70 £110
Closing Bank Balance ( End of month). Found by C plus D
£110 £20
Answers February - Cash Flow Table ….. Using Example 1
£30
ZERO£30
£60
£10£70
(-£40)
£20
(-£20)
Show answers
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Activity – Summer Cash Flow Estimates
• Imagine it is June 1st.
• Use the information provided on the cash flow forecast to fill in and interpret the missing figures.
• Imagine it is June 1st.
• Use the information provided on the cash flow forecast to fill in and interpret the missing figures.
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June July AugustCASH INFLOWS
Income from chores.£10 £30 £10
Income from gifts. ZERO ZERO £10
TOTAL INFLOWS (A) £10 £30 £______
CASH OUTFLOWS
Spending on others.ZERO £60 £40
Spending on self. ZERO £20 £30
TOTAL OUTFLOWS (B) £ZERO £80 £______
Net Cash Flow for month (C):( found by A MINUS B) £______
(-£______ ) ( a minus because
____________ are more than inflows)
(-£50)
Opening Bank Balance (D) ( Start of month) £70 £80 £______
Closing Bank Balance ( End of month). Found by (C) plus (D)
£______ £_______ (-£20)
Completing summer - Cash Flow Table…..Activity 3
10
80
50OUTFLOWS
30
20
70
30
Show answers
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Summer Cash Flow Activity – Questions for you to answer …
1. Based on your answer for the closing bank balance in August, what would you advise this person to ensure they have set up on their bank account BEFORE August?
2. What advice might you give them about their cash planning situation for SEPTEMBER?
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Summary:
• A Cash Flow Forecast is a table where a person or business tries to forecast/ estimate their inflows and outflows of cash over a period of months.
• This helps them identify where they need support from a bank with an overdraft facility AND
• It shows times where there is plenty of spare cash which could then be put in to an interest earning savings account.
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Questions - Use of Cash Flow Forecasts….
1. Why will the owner of a business want to have a cash flow forecast?
2. Why will they compare their ACTUAL cash flows each month with their estimated cash flow forecast?
3. Why will a bank want to see a cash flow forecast before they decide whether or not to grant an overdraft or bank loan?
4. Why might a potential investor want to see a cash flow forecast for a company ?
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Cash Flow and Cash Flow Forecasts
Cash Flow Forecasts in a business context ….
Part 2
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All will be able to Group Cash Inflows and Cash Outflows for a business.
Level 1
Grade E
Knowledge skills.Most will be able to complete a cash flow forecast and interpret it.
Level 2
Grades D to C – Application and Interpretation Skills.
Some will be able to advise problems with cash flow forecasting and discuss why stakeholders will be interested to see them.
Level 3
Grades B to A* - Advising Skills.
Outcomes:
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Match the definition to the key term…
Key term Definition
1. CASH INFLOWS
2. Cash outflows
3. Net Cash Flow
4. Opening Bank Balance
5. Closing Bank Balance
Cash Inflows MINUS Cash Outflows
Cash Income coming in to a person or business
Bank balance at the start of a month ( same as closing balance of the previous month!)
Net Cash Flow plus opening Bank Balance tells you this….
Cash spent by a person or business
Click and drag the correct definition to match the key term
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CASH INFLOWS to a business
compared to the CASH OUTFLOWS…
1. Vehicle Expenses e.g. fuel
2. Sales Turnover ( or Revenue)
3. Stock Purchases
4. Credit Notes from Suppliers
5. Energy Costs
6. Insurance
7. Share Capital ( or Owners Capital)
8. Bank Loan Received
9. Monthly repayments and interest on Bank Loan.
10. Government Grant
11. Wages and salaries paid to staff.
12. Rent.
Cash inflow/ outflow
OUTFLOWINFLOWClick the boxes, once for inflow,
twice for outflow
Click the boxes, once for inflow,
twice for outflow OUTFLOWINFLOW
OUTFLOWINFLOW
OUTFLOWINFLOW
OUTFLOWINFLOW
OUTFLOWINFLOW
OUTFLOWINFLOW
OUTFLOWINFLOW
OUTFLOWINFLOW
OUTFLOWINFLOW
OUTFLOWINFLOW
OUTFLOWINFLOW
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Put these stages of working out a Cash Flow for a month in the best order….…
A) Add NET CASH FLOW to the opening bank balance to find the closing bank balance for the month.
B) ADD up ALL Cash INFLOWS for the month.
C) Take Cash OUTFLOWS away from total cash INFLOWS to findthe NET CASH FLOW for the month
D) ADD up all Cash OUTFLOWS for the month.
E) Write the closing bank balance for the current month in to the box for the OPENING bank balance of the NEXT month.
First
Last Reveal answer B, D, C, A, E
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Activity – A Business Cash Flow
• We are going to look at an example of a completed Cash Flow Forecast for 3 months of a business.
• We are then going to check we can complete and interpret some cash flows.
• Note – need word document worksheet for this task called “CASH FLOW WJEC ACTIVITY”.
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Discuss our answers…
• Explain why you think Cathy’s purchases of materials and energy costs rise quite a bit in December compared to October and November.
• Fully explain what you think the difficulties and problems might be when businesses try and do cash flow forecasting.
• Why might using spreadsheet software help a business
create a Cash Flow Forecast?
• If when a business compares its ACTUAL cash flow with its
cash flow forecast, the cash flow forecast is constantly UNDERESTIMATING the amount of cash INFLOWS, what advice would you give the business about what it should do with its Cash Flow Forecast Table?