1.3.3 cash and cash flow Flashcards
Why is cash important to a business?
pay suppliers
pay overheads e.g. raw materials
pay employees
promote the business
What are some examples of cash outflows?
machinery and equipment
wages
raw materials
heating, lighting and insurance
How do you calculate cash flow?
cash flow = net cash flow + opening balance
How do you work out net cash flow?
net cash flow = receipts - payments
What is the opening balance?
the amount of money in a business at the start of a month (the previous month’s closing balance).
What is the closing balance?
the amount of money in a business at the end of a month
How do you work out closing balance?
closing balance = net cash flow + opening balance
What impacts cash flow?
change in stock levels
business expansion or contraction
change in sales revenue/change in demand
change in costs
What is cash?
the given amount of money that is available for a business to use to pay its debts.
What is a cash flow forecast?
Estimates of how much cash will come into and leave the business over a year
Pros of a cash flow forecast
Useful when deciding to :
recruit new staff
expand
spot times when cash might run out
Cons of a cash flow forecast
Like the weather, not always true
How to improve cash flow ( via cash in )
Diversity seasonal products
Overdrafts or loans
Get our customers to pay sooner
How to improve cash flow ( via cash out )
Spread out payments
Cheaper raw materials
Trade credit ( buy now pay later )
What’s the difference between profit and cash?
Profit is recorded straight after the sale compared to cash which is recorded when the money is received or spent.
