I can complete a cash flow forecast but the written part loses me marks. What should I be saying?

Look at the closing balance row, find where it goes negative or nearly so, and build your answer around that month. Most candidates describe the table; the marks are for identifying the problem and proposing something that fits it.

Find the pressure point

Read along the closing balance. You are looking for the lowest point, and whether it falls below zero.

That month is the subject of your answer. Say when it happens, how large the shortfall is, and — this is the part that earns the mark — why. The cause is always visible in the rows above: a large one-off payment, a seasonal dip in receipts, a tax bill, stock bought ahead of a busy period.

"The business has a cash flow problem" describes the table. "The business is overdrawn by 4,200 in March because the annual insurance premium and the equipment purchase fall in the same month, while sales are at their seasonal low" is an answer.

Match the solution to the cause

This is where most of the remaining marks are, and where generic answers fail.

A one-off timing problem — a single month's dip caused by a large payment — wants an overdraft, or negotiating to pay that bill in instalments or a month later. Cheap, temporary, proportionate.

A persistent shortfall across several months is not a timing problem. An overdraft will not fix it, and saying so shows judgement. That needs either more revenue, lower costs, or longer-term finance.

Slow customer payment wants tighter credit control, a discount for early settlement, or shorter credit terms — not borrowing.

Too much cash tied up in stock wants better stock management, ordering smaller amounts more often.

A solution that does not address the cause in the scenario gets little credit even if it is a real solution to some other business's problem.

Say what each solution costs

Every fix has a downside, and naming it is reliably worth a mark:

• An overdraft carries interest, and the bank can withdraw it
• Delaying supplier payment risks the relationship and future credit terms
• Discounts for early payment reduce the amount received
• Shorter credit terms may lose customers to competitors offering longer ones
• Cutting costs may reduce quality or capacity

"Arrange an overdraft, which would cover the March shortfall, though the interest would reduce profit and the facility is repayable on demand" is a complete answer in one sentence.

Two things to keep straight

A forecast is a prediction. It is built on estimated sales, and if those are wrong everything downstream is wrong. Questions asking about the limitations of a cash flow forecast want exactly this, plus the point that unexpected costs do not appear in it at all.

Cash is not profit. A business can be profitable and run out of cash, and the forecast shows cash only. If a scenario mentions the business is profitable and still has a shortfall, that is the point of the question — and the usual cause is credit sales, stock, or buying an asset outright.