Travel Reference
In-Depth Information
Jan (£000s)
Feb (£000s)
March (£000s)
Cash at start
32
57
59
Total cash infl ows
135
120
116
Total cash outfl ows
110
118
121
Net cash fl ow
25
2
(5)
Cumulative cash
57
59
54
Fig 2.4- Simplii ed cash l ow forecast for a 3-month trading period
start of trading, the cumulative cash position remained
positive. If the cash position at the beginning of March
had been negative, the business would have fi nished
the month with a negative cumulative cash position,
thereby triggering the need for either:
Figure 2.4 gives an example of a simplifi ed cash fl ow
forecast for a travel agency for a 3-month trading
period.
Referring to the example given in Figure 2.4, we can
see that the cash fl ow forecast identifi es:
1.
Extra funding from the owners or in the form of an
•
Cash infl ows - these include revenue from the sale
overdraft or bank loan;
of products or services, the start-up capital, loans
obtained and income from other sources, such as
rent from property and dividends received from
shares. In the case of a travel agency, the main cash
infl ows are made up of commission from sales of
holidays, fl ights, cruising, car hire, hotel reservations,
travel insurance and other travel services;
2.
Asking for extended credit to pay bills from
suppliers;
3.
Generating extra revenue from increased sales.
A cash fl ow statement indicates the periods in the year
when extra fi nancing, in the form of an overdraft or
loan, is required. This is particularly critical in the travel
and tourism sector, with its high degree of seasonal
activity. An organisation's cash fl ow statement forms
part of its audited accounts, together with its profi t and
loss account and balance sheet, and shows the funds
that have entered the company, how they have been
used and how any net surplus or defi ciency in short and
long-term funds have been applied.
•
Cash outfl ows - these include all the expenses
incurred in making the sales of products and services.
Continuing with the travel agency example, these
include running costs such as wages, rent, postage,
telephone, advertising and stationery, as well as
interest and loan repayments;
•
Net cash fl ow - by deducting total cash outfl ows
from total cash infl ows, the balance arrived at will
show, on a monthly basis, the amount of cash
forecast to be in the bank. For new businesses
in travel and tourism, the operators can see
immediately whether their efforts are likely to result
in a successful enterprise.
Activity 2.13
Using the example of the simplifi ed cash fl ow shown
in Figure 2.4, complete your own cash fl ow forecast
for your project, showing cash infl ows, cash outfl ows
and net cash fl ow.
In the example given in Figure 2.4, the net cash fl ow
(total cash infl ows minus total cash outfl ows) was
positive in January and February, but negative in March
(a fi gure in brackets denotes a minus amount). However,
because the business had a healthy cash balance at the
This activity is designed to provide evidence for P4.
