Cash-flow Forecast: Business Management

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

Why is maintaining a positive cash flow crucial for a business's relationship with its suppliers?

A positive cash flow guarantees that the business will always choose the same suppliers, fostering loyalty.
Suppliers are more likely to extend credit and continue trading with a business that consistently pays on time. (correct)
Positive cash flow status is required for suppliers to offer discounts on bulk orders; otherwise, prices increase.
It allows the business to negotiate better payment terms, regardless of its actual payment behavior.

Which scenario best illustrates the use of a cash-flow forecast as a proactive management tool?

A business only prepares a cash-flow forecast at the end of the fiscal year to report on past financial performance not to predict it.
A business uses a cash-flow forecast to identify a potential shortfall in funds three months in advance and arranges a line of credit. (correct)
A business creates a cash-flow forecast to secure a bank loan after already experiencing difficulties in paying its employees.
A business reviews its cash-flow forecast after encountering a significant unexpected expense to understand the impact.

What is the primary difference between a cash-flow forecast and a standard budget?

A cash-flow forecast is a legal requirement for businesses, while a budget is an optional management tool.
A cash-flow forecast is a prediction focused on cash inflows and outflows, whereas a budget is a plan for all income and expenses. (correct)
A cash-flow forecast only considers revenue, while a budget includes all financial transactions.
A cash-flow forecast is used for short-term planning, while a budget is designed for long-term financial management.

How might a business utilize a cash-flow forecast to improve its credit rating with financial institutions?

By demonstrating a clear understanding of its cash position and proactive planning for potential shortfalls. (C) Signup and view all the answers

Which of the following actions, based on a cash-flow forecast, would be most effective in mitigating a predicted cash shortfall in six months?

Negotiating extended payment terms with suppliers to delay outflows, and intensifying marketing efforts to boost inflows. (A) Signup and view all the answers

Why is it important for a business to include various payment methods (e.g., PayPal, Apple Pay) in their cash-flow considerations?

Because all monetary transactions, regardless of the method, impact the overall cash position of the business. (D) Signup and view all the answers

How does the inclusion of owner's personal savings as a cash inflow impact the interpretation of a cash-flow forecast?

It demonstrates a temporary solution to cash-flow problems but doesn't address underlying financial issues. (A) Signup and view all the answers

What potential risk does a business face if its cash-flow forecast relies heavily on a bank overdraft for managing outflows?

Over-reliance could obscure underlying profitability problems and lead to accumulating debt and associated interest charges. (D) Signup and view all the answers

When constructing a cash-flow forecast, which approach would provide the most accurate and realistic prediction of future cash flows?

Combining historical data with current market analysis and making adjustments for anticipated changes. (B) Signup and view all the answers

How can a business effectively use a cash-flow forecast to manage its wage expenses?

Anticipating periods of low cash flow and implementing strategies like temporary staff reductions or adjusting work schedules. (C) Signup and view all the answers

Flashcards

Cash-Flow Forecast

A tool to estimate cash coming in (inflows) and going out (outflows) of a business over a period.

Cash Inflows

Money coming into a business.