# Calculating the cash flow

This is an example of a cash flow forecast for the next three months:

ItemJanFebMar
Opening bank balanceĀ£2,000Ā£1,000Ā£-1,250
Total receipts (money in)Ā£500Ā£750Ā£5,000
Total spending (money out)Ā£1,500Ā£3,000Ā£2,000
Closing bank balanceĀ£1,000-Ā£1,250Ā£1,750

At the beginning of January, the business has Ā£2,000 worth of cash. You can see that the total flow of cash into the business (receipts) for January is expected to be Ā£500, and that the total outflow from the business (expenditure) is Ā£1,500. There is a net outflow of Ā£1,000 which means the projected bank balance at the beginning of February is only Ā£1,000.

In February, there are expected payments of Ā£3,000 and only Ā£750 of expected income. This means that the business is short of Ā£1,250 cash by the end of February and cannot pay its bills. An is needed to help the business survive until March when Ā£5,000 worth of payments are expected.

A business can improve its cash flow by:

• reducing cash outflows - eg by delaying the payment of bills, securing better trade credit terms or factoring
• increasing cash inflows - eg by chasing debtors, selling assets or securing an overdraft
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