Notes

• One of the advantages for using a cash flow forecast is that the business can see whether there is going to be any problems down the line and then they can plan for this to make sure that the business is well prepared or they can stop it before the problem arises. For example if the costs of making the products or bringing them in and the business can see that the business isn’t making enough money down the line then they could look for cheaper suppliers or minimize costs using other methods like buying in bulk. This means that the problem of not making enough profit on the goods or services and the business can see that money is a squeeze they can address that early before it becomes an issue.
• A disadvantage for using a cash flow statement is that a year is a long time and there is a lot that can happen both in the business and external of the business that can both affect the business. The disadvantage of the cash flow forecasts that it is unable to warn the business about any unforeseen factors. This means that even with a cash flow update which is updated means that the business can’t get caught out by other factors. This means that if the business have planned to take out extra funds for a specific time of the year and they get caught out by an unforeseen factor they are reliant on these extra funds which means the business can become more in debt than they have planned.