3.6.2 cash flow Flashcards
What is cash flow
Cash flow is the flow of money in and out of a business
What is cash inflow
Money flowing into the business liken revenue from selling things
What is cash outflow
Money flowing out of the business like tax and rent
What is net cash flow
Net cash flow = cash inflows- cash outflows
What are the consequences of poor cash flow
Not enough cash to cover day to day expenses
Staff may not get payed on time resulting in demotivating
Creditors will not get payed on time meaning less flexibility or even legal action
Lost benefit if suppliers discounts
What are the three main reasons for poor cash flow
Poor sales-lack of demand,less money, cannot pay creditors
Overtrading - too many raw materials and staff firm won’t get money enough to pay the depts and staff
Poor business decisions-not enough planning or market research
How to improve cash flow
Reschedule payments from customers, instant pay,
Reduce outflows
Increase inflows
Difference between cash and profit
Cash is the money a business can spend immediately
Profit is the amount of money a company earns after costs have been deducted
What is a cash flow forecast
A table that shows the predicted opening balances, cash inflows and outflows net cashflows and closing balances over a trading period
Why is cash important to a business
To survive
To pay employee overheads and suppliers
Opening and closing balances
Opening balance is the cash at the start of a trading period
Closing balance is the value of cash at the end of a trading period
How to calculate closing balance
Opening balance + net cash flow
Examples of cash inflows
Sales revenue - instant cash
Shareholders’ investments
Bank loans
Government grant
Sale of spare assets
Personal funds invested
Receipt from trade customers- credit shale
Examples of cash outflows
Wages
Rent
Mortgage repayment
Corporation tax
Dividends
Buying equipment
Paying for suppliers
