cash budgeting Flashcards
cash flow
Cash flow is all the money that comes into and goes out of a business.
working capital
Working capital is the difference between a company’s current assets, such as cash and its current liabilities, such as accounts payable.
liquidation
Businesses operating without working capital can no longer pay their debts. Some business in this position will go into liquidation, resulting in all their assets being sold (liquidated) to pay the debts of the business.
causes of cash flow problems
- Low sales
- Too much money tied up in stock
- Customers taking too long to pay
- Suppliers not offering credit
- Owner taking money out of the business
- Over-investment in new assets such as machinery
- Increase in expenses
potential consequences of cash flow
- unable to pay suppliers
- unable to pay wages
- unable to pay expenses
- may need to borrow at short notice
- may need to lower prices to increase sales
steps to overcome cash flow problems
- arrange a bank overdraft
- delay planned expenses until cash is available
- offer special discounts
- find a cheaper supplier
- debt factoring
cash flow forecast
Cash flow forecasting is a form of budgeting which tells the managers of a business how much money is going to be available over the coming months.
what can a cash flow forecast identify?
- how much cash is available
- when the business will have a deficit
- periods when the business might need to borrow
- periods of surplus cash which could be used to invest
other uses of cash forecasting
- to compare against predicted figures
- to measure performance
- to set targets
- to assist decision making
- to secure borrowing
