This document outlines key aspects of financial forecasting and cash flow management for businesses. It discusses revenue, costs, profit calculation, break-even analysis, cash inflows and outflows, working capital, cash flow forecasting and its importance. The cash flow forecast structure is demonstrated with an example forecast table showing monthly sales, expenses, opening/closing balances and net cash for a year. Cash flow forecasting helps businesses plan for cash needs, track receipts and ensure liquidity.

1. MONEY & FINANCE
MANAGEMENT

2. COURSE SCHEDULE
 CHAPTER 1: INTRODUCTION TO MONEY MANAGEMENT
 CHAPTER 2: FINANCIAL FORECASTING AND BUSINESS
 CHAPTER 3: BUSINESS ACCOUNTING
 CHAPTER 4: FINANCIAL RESOURCES

3. Chapter 2: Financial Forecasting
and Business

4. Revenue
 Revenue is a total income of business gains out of total sales
of the goods and services.
 Price per unit X Number of units sold = REVENUE

5. Costs (Expenses)
 Fixed Costs: The costs do not vary according to quantity of
goods and services sold. Utilities, salaries, advertising, rent,
office supplies etc. These costs are the same every month.
 Variable Costs: Costs vary in every production process.
According to the activity of the production, the quantity of
the goods and services produced, these costs increase or
decrease.
Total cost = FC + VC
VC = cost per unit X quantity

6. Profit = Revenue – Costs
 Once a business is up and running, and is controlling its cash
flow and making a profit, its directors and owners next
thoughts turn to expansion.
 Profit = Total Revenue – Total Cost

7. Break-Even Analysis
 At the break-even point, the sales revenue of the business
equals to total expenses.
 There is no profit or loss at this point.
 By using break-even analysis, you can calculate out how much
additional revenue will be required to cover any additional
costs.
 The business opportunities or evaluation can be analyzed.

8. Break–Even Analysis
 Total Revenue > Total Cost  Profit
 Total Revenue < Total Cost  Loss
 Total Revenue = Total Cost  Break – Even PointPrice
Quantity
Break Even Point
Total cost
Sales

9. Break–Even Analysis
 The break-even in units formula:
Fixed Costs
= Break-even in Units
(Unit Price - Unit Cost)

10. Cash Flow – Cash inflow – Cash
outflow
Cash
inflow
Cash
outflow
YOUR
BUSINESS
Cash flow is the money that is moving in and out of your
business in a time period.
Cash inflow: movements of cash into a business
Cash outflow: movement of cash out of a business

11. Cash Inflows
 Cash Sales
 Receipts from customers
 Sale of assets
 Investment
 Personal funds
 Receipt from bank loan
 Government grants
 Receipts from factoring

12. Cash Outlow
 Payments of wages and salaries
 Payment of suppliers
 Cost of equipment
 Interest of bank loan
 Payment of dividends
 Payments of leasing or hire purchase of rentals
 Income tax
 VAT & Corporation tax

13. Cash Balance
 For ex: The following chart shows the Total Cash Inflow, Total
Cash Outflow and Net Cash Flow of Company X.
Jan Feb Mar Apr May
Total
Cash
Inflow
60,000 55,000 60,000 66,000 54,000
Total
Cash
Outflow
63,000 60,000 60,000 63,000 58,000
Net Cash
Flow
-3,000 -5,000 0 3,000 -4,000
Net Cash
Balance
-3,000 -8,000 -8,000 -5,000 -9,000

14. What is Working Capital?
 Working capital is the money needed by a business for its day-
to-day or immediate needs.
 Cash or working capital is used to buy raw materials which are
turned into finished goods and then sold to customers.
 Businesses who hold too much working capital in stock are in
effect wasting their cash as are businesses that do not chase
customers who don’t pay on time.
 Controlling the working capital cycle links closely with an
accountant’s role to manage cash and forecast cash flow
needs.

15. What is a Cash-Flow Forecast?
 A Cash Flow Forecast is an important financial tool. Cash
flow forecasting is a one year analysis of the cash
requirements to run the business.
 It is a way of looking into future and gives the business an
opportunity to take action to create financial plans before
unwanted situations.
 By forecastingthe business cash flow you can manage receipts
and disbursements for your business.
 By undertaking a cash flow forecast, a business can see what
its cash requirements might be and arrange an overdraft or
some other strategy to ensure that it does not face a liquidity
crisis.

16. Building a Cash-Flow Forecast
There are 3 components of the cash-flow forecast; receipts,
expenditures and cash flow.
For each month in a year:
 Write your Total Reciepts (Cash Inflow)
 Write your Total Expenditure (Cash Outflows)
 Calculate your Cash-Flow

17. Structure of a Cash-Flow Forecast
Jan Feb Mar Apr May Jun Totals
Sales:credit 50,000 48,000 52,000 70,000 48,000 50,000 318,000
Sales: Cash 10,000 7,000 8,000 8,000 6,000 2,000 41,000
Total receipts 60,000 55,000 60,000 78,000 54,000 52,000 359,000
wages 30,000 34,000 32,000 32,000 32,000 32,000 192,000
Materials 12,000 5,000 7,000 8,000 3,000 5,000 40,000
Interest 3,000 3,000 3,000 3,000 3,000 3,000 18,000
Overheads 18,000 18,000 18,000 20,000 20,000 20,000 114,000
Total Outflows 63,000 60,000 60,000 63,000 58,000 60,000 364,000
Opening Bank Balance 0 -3,000 -8,000 -8,000 7,000 3,000 -5,000
Net Cash -3,000 -5,000 0 15,000 -4,000 -8,000 -5,000
Closing Bank Balance -3,000 -8,000 -8,000 7,000 3,000 -5,000 -10,000

18. The Importance of Cash-Flow
Forecasting For Managers
 You can see the most effective way of using your cash.
 You can track your cash inflows.
 You can see your payment priorities.
 You can measure the unexpected changes such as reduction in
sales, late repayments, tight money situations.
 You can have your paying details as written.
 You can estimate how much money you need for your day-to-
day or immediate day-to-day operations.
 You can understand that you have enough cash to make your
payments.