Eric Asare unit 3 m3
Task M3
Explain what is meant by regular and irregular cash flow.
REGULAR – means doing something frequently. It is expected
IRREGULAR – means not happening in the normal expected way. The credit
crunch is an example of how businesses can get irregular cash inflow. Not
following normal rules
Give one example for each.
All businesses prefer to make regular and planned payments because then it is
easier for them to plan and predict what their cash flow would be.
Regular cash flows suggest that the project under consideration provides a
constant amount of cash flows over the life of the project. Irregular cash flows
suggest that the cash flows for each of the years of the project life are not
constant showing an either increasing trend or a declining trend. There may be a
situation where the company might need to invest additional amount in one or
more years of project life.
How does having regular and irregular cash flow affect your business?
Irregular cash outflow can negatively affect forecasts flow forecast for many reasons. Firstly,
the predictions on the cash flow forecast many now be completely inaccurate, this means if
the business wants to improve the accuracy of its cash flow forecast it must go back and re-
do it, this is an opportunity cost as it takes up a lot of time, money and effort which could
have been put to use elsewhere in the business. Having an irregular cash flow can lead to
serious problems for the business, these can included creditors may not be paid in time,
which may lead to stricter terms of credit in the future, or no credit allowed at all. If there is an
irregular cash outflow this may limit the business decisions that can be taken. In order to get
a loan from the bank etc., business must include a cash flow forecast in their business plan.
If the cash outflow is irregular the bank may reject them for a loan because they may fear the
business will be unable to pay the bank back, meaning the bank loses out.
Change your current cash flow forecast and make changes to the
revenue so that some parts a regular and others are irregular. Print
screen and annotate the changes.
1 | Page
Task M3
Explain what is meant by regular and irregular cash flow.
REGULAR – means doing something frequently. It is expected
IRREGULAR – means not happening in the normal expected way. The credit
crunch is an example of how businesses can get irregular cash inflow. Not
following normal rules
Give one example for each.
All businesses prefer to make regular and planned payments because then it is
easier for them to plan and predict what their cash flow would be.
Regular cash flows suggest that the project under consideration provides a
constant amount of cash flows over the life of the project. Irregular cash flows
suggest that the cash flows for each of the years of the project life are not
constant showing an either increasing trend or a declining trend. There may be a
situation where the company might need to invest additional amount in one or
more years of project life.
How does having regular and irregular cash flow affect your business?
Irregular cash outflow can negatively affect forecasts flow forecast for many reasons. Firstly,
the predictions on the cash flow forecast many now be completely inaccurate, this means if
the business wants to improve the accuracy of its cash flow forecast it must go back and re-
do it, this is an opportunity cost as it takes up a lot of time, money and effort which could
have been put to use elsewhere in the business. Having an irregular cash flow can lead to
serious problems for the business, these can included creditors may not be paid in time,
which may lead to stricter terms of credit in the future, or no credit allowed at all. If there is an
irregular cash outflow this may limit the business decisions that can be taken. In order to get
a loan from the bank etc., business must include a cash flow forecast in their business plan.
If the cash outflow is irregular the bank may reject them for a loan because they may fear the
business will be unable to pay the bank back, meaning the bank loses out.
Change your current cash flow forecast and make changes to the
revenue so that some parts a regular and others are irregular. Print
screen and annotate the changes.
1 | Page
