ABE Level 4 Diploma in

Business Management

Finance for Managers

• 2017
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Business Management Qualifications
ABE Level 4 Diploma in Business Management –
Finance for Managers
Element 3 – Cashflow forecasts and budgets

Learning Outcome 3 – Prepare cash flow forecasts and financial budgets to aid
management decision making

This presentation is provided by ABE for tutors to use to facilitate classroom learning, in conjunction
with the session plans and activities supplied. Please involve your students actively in your sessions,
using the ideas provided here - plus some of your own.

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CASHFLOW FORECASTS AND BUDGET

Learning Outcomes:

3. Prepare cash flow forecasts and financial budgets to aid management decision
making

1. Prepare cash flow forecasts for internal management control

2. Prepare organisational budgets to aid management decision making

3. Evaluate completed cash flow forecasts and financial budgets to make informed business
decisions

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 Prepare cash flow forecasts for
internal management control

3.1

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5

There are three main sections to a cash flow forecast

•Cash inflows – for example sales income, commission received, money

from a bank loan.

•Cash outflows – for example raw materials, salaries, heat and

light expenses.

•Balances – these are the opening and closing balance for each
month.

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Understanding cash flow forecasting

•Review examples and case studies in the study guide.

•Complete activities in the study guide to see cash flows in action.
•Consider how to improve cash flow in business by increasing inflows and
decreasing outflows.
•Understand cash versus profit
NET CASH FLOW = CASH INFLOW – CASH OUTFLOW
PROFIT = SALES – VARIABLE COSTS – FIXED COSTS

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 Prepare organisational budgets to
aid management decision making

3.2

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8

Sales budget

It forecasts the number of units of each product that a business aims to sell
next financial year, the price level to be charged and the sales revenue that
should be received.

Month 1 Month 2 Month 3

Sales unit x x x

Sales value ($) x x x

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 Purchases budget

This will predict the quantity of goods that need to be purchased for the
following year.
Month 1 Month 2 Month 3
Units
Sales x x x
Opening (x) (x) (x)
inventory
Closing x x x
inventory
Purchases x x x
Purchases cost $x $x $x

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 Production budget

It forecasts the number of units of each product that a business aims to

produce over the next financial year.
Month 1 Month 2 Month 3

Sales x x x

Opening (x) (x) (x)

inventory
Closing x x x
inventory
Production x x x

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1

Trade receivables budget

It forecasts the amount that is due from trade receivables at the end of the
budget period.
Month 1 Month 2 Month 3
$ $ $
Opening trade x x x
receivables
Credit sales x x x
Receipts from trade (x) (x) (x)
receivables
Discounts allowed (x) (x) (x)
Bad debts written off (x) (x) (x)
Closing trade x x x
receivables

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2

Trade payables budget

It forecasts the amount that is owed to trade payables at the end of the
budget period.
Month 1 Month 2 Month 3
$ $ $
Opening trade x x x
payables
Credit purchases x x x
Payments to trade (x) (x) (x)
payables
Discounts received (x) (x) (x)
Closing trade x x x
payables
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3

Cash budget / cash flow forecast

This will predict the closing bank balance, and allow organisations to make informed
decisions relating to cost savings, the need for additional borrowing etc.
Month 1 Month 2 Month 3
$ $ $
Cash Inflows
Capital x x x
Cash sales x x x
Credit sales x x x
xxx x x x
Total cash inflow x x x

Cash outflows
Cash purchases x x x
Credit purchases x x x
xxx x x x
xxx x x x
xxx x x x
Total cash outflow x x x
Net cash flow x x x
Opening Balance x x x
Closing Balance
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 Evaluate completed cash flow
forecasts and financial budgets to
make informed business
decisions

3.3

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Improving cash flow management

Business managers may need to solve cash flow management issues.

The managers will need to address the following questions:

How much finance is required?

Can the finance be secured internally?
How long is the finance required for?
What period of time should the finance be repaid?

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Sources of finance

Internal Sources
This is finance attained from within the business organisation. There is no
time limit and generally no interest to be paid.

•Retained profit – this is a cheap and flexible source of finance. The

retained profit can be used to generate future profits and therefore with
shareholder permission be used to solve cash flow problems.
•Sale of assets – in a cash flow crisis, the business organisation could
sell one or more of their non-current assets in order to gain instant cash.
•Sale and leaseback – this will allow the business organisation to receive
a cash payment thereby improving short term cash flow.

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External Sources
This is finance attained from outside of the business organisation.

 Share issues – only available to limited companies. These may issue ordinary or preference shares
in order to raise extra funds. They will, however, have to pay dividends to the shareholders.
 Loans – usually short / medium term loans which can be used for a variety of purposes and will
be repaid with interest.
 Debentures – long term loans to a business organisation at an agreed fixed interest rate, repayable
on a stated date. These are usually offered for up to 25 years.
 Mortgages – usually used to purchase property where the asset will act as collateral for the
loan. They are usually offered for up to 30 years.
 Government Grants – these are selective and usually take the form of grants for selected
purposes.
 Overdrafts – used for cash flow problems. Very expensive if used over a long period of time as the
interest rates are usually very high.
 Debt factoring – business organisations will receive immediate payment for their credit sales,
however, the factoring company will charge for the collection of the debt.

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Variance analysis

What is variance analysis?

Any differences that occur between budgeted and actual figures (for
example sales, costs, etc.) are known as variances.

Businesses need to investigate any variances and attempt to determine

the reason for these. This is known as budgetary control.

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 Contact
ABE’s offices are located in
New Malden,
Greater London, UK.

Tel. +44 (0)20 8329 2930

E-mail. [email protected]

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