Benefits and limitations of cash flow forecasts

Cash flow forecasts are a very useful tool for many businesses. Table E.6: outlines the benefits and limitations of using them.

Table E.6: Benefits and limitations of cash flow forecasts
Benefits	Limitations
Encourages planning for cash inflows and outflows. Enables cash flow to be monitored and corrective action taken if necessary. Can be used as part of a business plan to help raise finance. Identifies in advance times of negative closing balances allowing business to plan for these.	Based on forecasts and therefore may be inaccurate. Cannot plan for unexpected events such as a rise in the cost of raw materials. Time taken to produce a cash flow forecast could have been spent on other tasks.

Activity. E.6: 

Draw a cash flow table to show your personal finances for the next month. Think about what money will be coming in from wages, presents, parents, as appropriate, and what expenses you will have. These might include food and drink, presents, trips, travel etc.

E.6.1:   What is your opening balance at the start of the month?

 

E.6.2:   What is your closing balance at the end of the month?

 

E.6.3:   Are there any points during the month where you may have a cash flow problem?

E.6.4:   What actions can you take to ensure that any cash flow problems are solved?