Cash Flow Management Concepts

The video tutorial explains the importance of cash flow forecasting for businesses, detailing how to predict cash inflows and outflows over a period. It highlights the benefits, such as preventing insolvency and aiding in financial planning, while also addressing the challenges, especially for new businesses. The tutorial covers key terminology and provides a practical example of creating a cash flow forecast, emphasizing the need for accuracy and regular monitoring.

What is the primary purpose of a cash flow forecast?

• To calculate the total assets of a business

• To determine the market value of a business

• To predict the movement of money into and out of a business's bank account

• To estimate the profitability of a business

What does a positive net cash flow indicate for a business?

• The business is predicting more money will come in than go out

• The business has no cash flow issues

• The business is operating at a loss

• The business is predicting more money will go out than come in

How can cash flow forecasting help prevent insolvency?

• By eliminating all debts

• By increasing sales

• By predicting cash shortages and allowing proactive measures

• By reducing employee wages

Why might a bank require a cash flow forecast before approving a loan?

• To assess the business's historical and future cash flows

• To check the business's inventory levels

• To determine the business's market share

• To evaluate the business's marketing strategy

Which of the following is a common cash inflow for a business?

• Insurance payments

• Sales to customers

• Utility bills

• Employee wages

What is a common cash outflow for a business?

• Rental income

• Sales revenue

• Employee wages

• Capital from investors

What does the opening balance represent in a cash flow forecast?

• The total expenses for the period

• The bank balance at the start of the period

• The total sales for the period

• The net profit for the period

How is the net cash flow calculated?

• By dividing total inflows by total outflows

• By adding total inflows and total outflows

• By subtracting total outflows from total inflows

• By multiplying total inflows by total outflows

In the example provided, what was the closing balance for April?

• £4625

• £3325

• £2125

• £1200

What should a business do if it predicts a negative net cash flow for a future period?

• Investigate and develop solutions to increase cash inflows

• Increase expenses

• Ignore the forecast

• Reduce sales