3.3b Cash Problems Flashcards
What is a cash flow statement?
A Cash Flow statement is a record of the cash inflows and outflows to a business in the past.
How can you use a cash flow statement? (3 answers)
- It can be used to monitor the performance of the business.
- It can be used to compare performance from month to month/year to year.
- Past cash flow can be compared with predicted cash flow.
What are cash inflows?
Cash inflows are all the money that comes into the business
Give some examples of cash inflows for a business (3 answers)
Cash from selling assets
Cash from customers in making sales
Cash from interest on loans given out
What are cash outflows?
Cash outflows are all the money that’ll leave the business in order to pay its total costs
How should a business act when estimating costs and why?
A business should be cautious when estimating costs, because it is better to estimate that costs will be higher than expected and have a plan in case money needs to be paid sooner than expected
What are some examples of cash outflows for a business? (4 answers)
Advertising and marketing
Wages
Cost to make the product + cost of equipment
Legal and accounting costs
What is the net cash flow
The net cash flow is the difference between the cash inflows and cash outflows
How do you calculate net cash flow?
By using the formula:
net cash flow = cash inflows - cash outflows in a given period.
What can a business use a net cash flow figure for?
A business can use a net cash flow figure to see if there is sufficient money in the business to cover its costs. They can also use it to look ahead and work out if they’ll need to borrow money and if so, for how long
What is the opening balance?
The opening balance is the amount of money in the business’ bank acquired at the start of any period
What is the closing balance?
The closing balance is the amount of money at the end of each month
How do you know what the opening balance for a month is?
The opening balance is the closing balance for the previous month
What is the closing balance?
The closing balance is the amount of money in the bank at the end of each month?
How do you calculate the closing balance?
To calculate closing balance:
closing balance = opening balance + net cash flow
How is a cash flow forecast laid out (6 points)?
–The months are written at the top of the forecast
- -The cash inflows are written in one table with the total cash inflows
- -The cash outflows are written in one table with the total cash outflows
–The net cash flow is recorded
The opening balance and closing balances are shown
The total costs for each category (row) are recorded in a total (£) column on the right
What is a receipt?
A receipt is a written acknowledgment that a person has received money in payment following a sale or other transfer of goods or provision of a service.
What do businesses aim to have in terms of cash flow for each month?
Businesses aim to have positive cash flow, where more money is coming into the business than going out.
What is a cash flow forecast?
A cash flow forecast is an estimate of how much cash will come into the business and how much will leave the business
Why will creating a cash flow forecast be challenging to a new business?
As the entrepreneur has no previous years’ figures to help them estimate so there is some realistic thought, but also some guesswork required
What are the uses of cash flow forecasts? (3 answers)
- Businesses use them to plan future strategy e.g. if the projected net cash flow is negative they may have to change their plans
- Businesses need to draw up cash flow forecasts if they want to borrow money e.g. bank
- Any agency giving a grant (a quantity of money) will also want a cash flow forecast/ this is part of the business plan.
What are some cash flow problems for businesses? (6 answers)
- Salaries can stretch
- Overdraft is at its limit
- Creditor arrears (money yet to be paid back)
- No working capital
- Lack of profit
- Taxation arrears
