5 - Cash And Cash Flow Flashcards
What is meant by “cash” in business terms?
Money a business can spend immediately
What is meant by “cash flow”?
Money coming in and out of a business
What is managed by cash flow?
Timings of cash transfers
What is meant by a “cash inflow”?
Cash coming into a business
What is meant by a “cash outflow”?
Cash going out of a business
What is the formula for a “net cash flow”?
Cash Inflows - Cash Outflows
What is meant by an “Opening Balance”?
The cash a business starts to trade with
What problem will a low opening balance create?
Liquidity problem
What is meant by a “Closing Balance”?
Cash a business finishes with after trading
What is meant by a “cash flow forecast”?
A business’s prediction of money coming in and out over a period of time
What will businesses estimate all the possible sources of in a cash flow forecast?
Cash inflows and outflows
In what 2 ways are cash inflows and outflows forecasted by a business?
Past data
Market research
Why is it important for businesses to forecast cash flows accurately?
To avoid liquidity problems
What is meant by a “liquidity problem”?
When a business runs out of cash in the short-term
What 2 things won’t a business be able to afford with a liquidity problem?
Rent
Wages
How can a business solve a liquidity problem?
Reduce cash outflows and increase cash inflows
What happens if a business has persistent negative cash flows?
It won’t be sustainable
What 3 things won’t a business be able to pay for with negative cash flows?
Salaries
Rent
Raw materials
Who does negative cash flow have a short-term consequence for?
Stakeholders
Who won’t a firm be able to pay if it runs out of cash?
Its employees
What will be negatively impacted if an employee is worried about cash? What might they leave?
Their employee motivation
The firm
What is meant by “creditors”?
People or organisations who have loaned a business money
Who won’t a business be able to afford to pay back if it runs out of cash?
Creditors
What might businesses not be able to take out if it can’t pay creditors?
Loans
What rates might increase if a business owes money to creditors?
Interest rates
What happens if a business runs out of cash to pay suppliers with?
A temporary halt in production
What relationship might be damaged if a temporary halt in production takes place?
Suppliers and the business
What could a business reschedule to solve cash flow problems?
Cash payments
How could a business delay a payment to suppliers?
Trade credit
What payment could be delayed to suppliers with a positive cash flow?
Suppliers’ payment
What problem can a business overcome by finding new sources of finance?
Liquidity problems
What could be increased to increase cash inflows?
Sales
Who could businesses chase up to increase cash inflows?
Customers who owe money
What could a business sell to increase cash inflows?
Assets
What can a business try to reduce to solve a liquidity problem?
Cash outflows
What can a business delay to reduce cash outflows?
Payment of bills
What are 2 ways a business can delay bill payments?
Change the dates
Secure trade credits
Why are forecasts useful when a cash shortfall is predicted?
They can adjust their cash payments
What do overdrafts allow for businesses to have in the short-term?
A negative current account balance
What do banks provide to plug a short-term lack of cash?
“Bridging finance”
