Forecasting and managing cash flows
| English | Chinese | Pinyin |
|---|---|---|
| cash flow | 现金流 | xiàn jīn liú |
| inflows | 现金流入 | xiàn jīn liú rù |
| outflows | 现金流出 | xiàn jīn liú chū |
| receipts | 收款 | shōu kuǎn |
| net cash flow | 净现金流 | jìng xiàn jīn liú |
| cash flow forecast | 现金流预测 | xiàn jīn liú yù cè |
| debtors | 欠款客户 | qiàn kuǎn kè hù |
| deposits | 定金 | dìng jīn |
| lease | 租赁 | zū lìn |
Profit is opinion, cash is fact
- A business can be profitable on paper and still go bust — if the cash isn't there to pay this week's wages.
- Cash flow 现金流 is the lifeblood, and forecasting it is survival.
Inflows are 50 and outflows are 62. What is the net cash flow?
Net cash flow = 50 − 62 = −12.
Cash inflows 现金流入 and outflows 现金流出
- Inflows: cash coming in (sales receipts 收款, loans, investment).
- Outflows: cash going out (wages, suppliers, rent, loan repayments).
- Net cash flow 净现金流 = inflows − outflows for a period.
A cash-flow forecast 现金流预测 tracks the closing balance each month
A cash-flow forecast
A cash-flow forecast tracks money in and out each month — to spot a shortfall before it happens.
Opening balance 20, net cash flow −8. What is the closing balance?
Closing = opening + net cash flow = 20 + (−8) = 12.
The main purpose of a cash flow forecast is to:
It flags shortages early so finance can be arranged.
The cash flow forecast
- A cash flow forecast predicts inflows and outflows month by month.
- It reveals when the firm might run short — so it can arrange finance before a crisis.
Worked example. Opening balance 10, inflows 40, outflows 55 → net cash flow = 40 − 55 = −15. Closing balance = 10 − 15 = −5. A negative balance warns the firm to arrange an overdraft now.
Build the six-month forecast
Drag the monthly cash in, cash out and the one-off machine purchase — find the month that closes in the red, then fix it before it happens.
Which improve cash flow? (Select all that apply.)
Paying early worsens cash flow; the others improve it.
A credit sale adds to profit at once but brings no ______ until the customer pays.
Profit and cash are not the same thing.
Improving cash flow
- Speed up inflows: chase debtors 欠款客户, ask for deposits 定金, sell off slow stock.
- Slow down outflows: negotiate trade credit, lease 租赁 instead of buy, delay non-urgent spending.
A profitable firm can still run out of cash — profit on paper isn't the same as money in the bank
Profit is not the same as cash. A sale on credit adds to profit immediately but brings no cash until the customer pays. A firm must manage cash, not just chase profit.
You've got it
- net cash flow = inflows − outflows; the forecast predicts it month by month
- it warns of shortages early, so finance can be arranged in time
- improve cash flow by speeding inflows and slowing outflows — cash ≠ profit