Finance illustration Finance theory

Using a cash flow forecast

A forecast is an estimate of future figures based on experience. You can make forecasts about all sorts of events e.g. the weather, the likely result of a sports fixture, etc. In business, you can forecast future sales figures, or the likely cash flow into and out of a business. A business often prepares a cash flow forecast showing the money likely to flow into and out of its bank account in a given period.

Calculating cash flow

A retailing business typically makes sales of 500 items a month at £5 each. It buys each item that it resells for an average cost of £2.50 each. The running costs of the business are typically £1,000 per month. We can now calculate the cash flow of the business and set it out in a chart. The 'bottom line' of each monthly column shows the forecast bank balance at the end of that month.

Forecasts are based on past experience, whereas budgets are based on active plans for the future.



Related Theory

Supporting Documents

These downloads will help to put finance theory into context using real world examples from real businesses.

Using sponsorship to increase brand awareness
Infiniti logo

Discover how Infiniti applied finance theory to succeed in the automotive industry by downloading our premium case study.

Leading a revolution in banking
Intelligent finance logo

Find out how Intelligent finance employed finance theory to prosper in the financial services industry by downloading our premium case study.

Sponsorship as part of the marketing mix
Ford logo

Learn how Ford used finance theory to succeed in the automotive industry by downloading our premium case study.

Using the marketing mix in the fashion industry
Ben Sherman logo

Find out how Ben Sherman applied finance theory to prosper in the fashion industry by downloading our premium case study.

The use of the marketing mix in product launch
NIVEA  logo

Discover how NIVEA employed finance theory to thrive in the manufacturing industry by downloading our premium case study.