To what extent do you think Toms cash flow forecast will help guarantee the success of his Joshua franchise?
A cash flow forecast is an estimate of figures to see how you cash will, or is being used. The fact that it is an estimate brings the possibility that the figures can be changed. However as cash flow forecast is constructed taking into consideration the status of the business financially therefore it is something to notice when there are negative numbers. this shows that finance is not being used in the right places and effectively. if this is happening, then essentially, the business is failing. In the first year of trading, Tom estimates that he will have a negative figure of cash.
This could be a problem ass he would need to work harder and make some changes to improve the cash flow to be be smoother. his inflows are estimated to be very high which is a good factor for Toms franchise. however, so are his outflows; these need to be reduces; he could maybe find a premises where the rent is cheaper as city rent prices are significantly higher than where he lived (ALWAYS LINK BACK TO THE CASE STUDY FOR THE HIGHEST MARKS) In the second year of trading, Toms cash flow starts to show positive figures as his inflows rise quite a lot.
This is good as it is showing there is a chance of success for his franchise. Although there eventually is a smooth flow of cash on the forecast, it cannot guarantee success as the current situation of the Joshua company could change as their market share has declined over the pas 15 years of growth.