2.1.4 Planning and Cash Flow

Question 1

cashflow

Answer 1

the flow of money into and out of a business over a given time period

Question 2

why should a business plan raising finance?

Answer 2

-it should be persuasive to potential outside investors and useful to any entrepreneur
-it should share what they are trying to achieve
-it should show the risks and rewards of the proposal

Question 3

competitive advantage

Answer 3

a factor that allows a company to produce goods or services better or more cheaply than its rivals

Question 4

what should a business plan include?

Answer 4

-structured assessment of opportunities and risks
-amount and type of finance required
-business model
-executive summary

Question 5

why is cash flow forecasting important?

Answer 5

it can address many problems such as why a business fails
-important part of financial management

Question 6

benefits of a carefully prepared cash flow forecast

Answer 6

-advanced warning of cash shortages
-ensures the business can afford to pay suppliers and employees
-spots customer payment problems
-financial control

Question 7

cash flow forecast

Answer 7

a forward looking statement that tries to predict cash inflows and outflows in the future

Question 8

what do cash inflows show?

Answer 8

cash in from sales, they appear in the month of sale
-credit sales appear in month of cash receipt
-cash from other sources, for example loans and investments

Question 9

what do cash outflows show?

Answer 9

cash out for purchases and payments, they appear in the month of purchase
-credit payments appear in month of cash outflow
-e.g. phone usage, call changes every 3 months

Question 10

net cash flow calculation

Answer 10

net cash flow= cash inflows- cash outflows

Question 11

what is the net cash flow?

Answer 11

the net result of cash inflows and cash outflows each month

Question 12

opening balance

Answer 12

how much the business has at the start of each month
(closing balance from previous month)

Question 13

closing balance

Answer 13

how much the business has at the end of each month

Question 14

closing balance calculation

Answer 14

closing balance= opening balance + net cash flow

Question 15

give some factors that affect cash flow

Answer 15

transaction types
-sales, purchases, payment plans

timings of cash flows
-seasonal sales, timings of payments

nature of business
-start up capital, costs and stock holdings