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Forecasting cash flow

Involves making predictions about cash inflows and estimating cash outflows in order to forecast the amount of cash held (usually within the bank) at the end of a given period of time. Example: A business’s: total cash inflows for the period are £65,338, total cash outflows for the period are £28,762, and opening balance for the period was £10,032. Its net cash flow (total cash inflow – total cash outflow) is £36,576. The closing cash / bank balance (opening balance – net cash flow) is £46,608. NB The closing bank balance then becomes the opening bank balance for the following period. Forecasting cash-flow is vital for all businesses to ensure survival and especially for those businesses affected by seasonal demand, as well as those businesses seeking external finance in the form of borrowing (ie loan capital).

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