5 Cash Flow Management & Forecasting 39

Question 1

What is the importance of cash flow ?

Answer 1

82% of small companiesfail due to cash flow problems normally small businesses. E.g. Thomas Cook

Question 2

What is Cash Flow ?

Answer 2

The flow of money into and out of a business in a given time period.

Question 3

What is Cash Flow forecasting ?

Answer 3

Estimating the flow of cash in the future

Question 4

What are the 2 types of cash flow ?

Answer 4

Cash in

Cash out

Question 5

Examples of Cash In …

Answer 5

Share issuance
Sales revenue
Sale of assets
Owner's cash injection
Loans

Question 6

Examples of Cash Out …

Answer 6

Wages
Rent
Debt repayments
Paying suppliers
Dividends

Question 7

What is Monthly Balance ? …

Answer 7

Monthly inflow minus monthly outflow.

Shows a positive or negative movement of cash.

A negative reading is sometimes shown in (brackets).

Opening and closing balance show how much cash is in the business at the start and the end of each month

Question 8

What are the methods of improving cash flow ?

Answer 8

Efficient production techniques and effective distribution channels

Quick payment by debtors

Debt factoring, the selling of debtors (money owed to the business) to a third party

Low stocks

Keep fixed costs low (rent rather than buy)

Credit control, limit creditand monitor repayment Ts & Cs

Question 9

Improving the cash position Short term

Answer 9

..Short Term..
. Reduce current assets (stock and debtors)
. Increase current liabilities (delaying payment)
. Sell surplus fixed assets

Question 10

Improving the cash position Long term

Answer 10

• -Long Term–
• Increase equity finance
• Increase long term liabilities
• Reduce net outflow on fixed assets