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Remember, the closing cash/bank balance for one month is the opening cash/bank balance for the next month! The net cash flow is added to opening cash balance to find the closing cash/bank balance– the amount of cash held by the business at the end of the month. Net Cash Flow = Total Cash Inflow – Total Cash Outflow The opening cash/bank balance is the amount of cash held by the business at the start of the month The total inflows and outflows have to be calculated after each section. The cash inflows are listed first and then the cash outflows. whether the business has too much cash that can be put to a profitable use in the businessĮxample of a cash flow forecast for the four months:.how much cash the bank will need to lend to the business to avoid insolvency (running out of liquid cash).how much cash is available for paying bills, purchasing fixed assets or repaying loans.This then shows the expected cash balance at the end of each month. Cash Flow ForecastsĪ cash flow forecast is an estimate of future cash inflows and outflows of a business, usually on a month-by-month basis. In a cash flow, only those elements paid by cash are considered. It includes all income and payments incurred in the year, whether already received or paid or to not yet received or paid respectfully. by paying creditors of the business- creditors are suppliers who supplied items to the business but were not paid at the time of supply.Ĭash flow is not the same as profit! Profit is the surplus amount after total costs have been deducted from sales.

repaying loans (cash is going out of the business).paying wages, salaries and other expenses in cash.

purchasing goods and materials for cash.

investors putting more money into the businessĬash outflows are the sums of money paid out by the business over a period of time.

the money from the sale of business assets.

money borrowed from external sources, like loans.

payment from debtors– debtors are customers who have already purchased goods from the business but didn’t pay for them at that time.

The cash flow of a businesses is its cash inflows and cash outflows over a period of time.Ĭash inflows are the sums of money received by the business over a period of time. The business needs to have an adequate amount of cash to be able to pay for all its short-term payments. If a firm doesn’t have any cash to pay its workers, suppliers, landlord and government, the business could go into liquidation– selling everything it owns to pay its debts.