Cash budgets, problems and solutions Flashcards
what is a budget
an estimated plan which firm expects to achieve within a period of time
what does cash inflow include
revenue from sale, payments from debtors, finance from borrowing, new equity investment, commission
what does cash outflow include
money spent on inventory, loan repayments, payment to creditors, running costs e.g. rent, electricity
what is the purposes of cash budgets
they are drawn up to aid effective decision making
what are the uses of budgets for managers
- aids decision making from financial info
- helps asses the quality of managers
- motivates staff
- empowers staff
what is cash flow
the physical movement of cash in and out of a business
what is a cash budget
it is a prediction of receipts and payments of cash
what does a statement of cash flow show?
the actual receipts and payments of cash over a time period
what impact does poor cash flow have on an organisation
- cannot pay bills so supplies won’t be bought
- increased borrowing, increases expenses
- insufficient funds means plans cannot be made
what happens if there is a cash crisis
take action
- find out why
- put in place procedures
- identify trends
- hold staff accountable for actions
what actions can be taken to solve a falling for demand
cash flow problem
- increase selling point
- reduce selling point
- run campaign/more promo
what are the pros and cons of increasing selling point
pro- more cash and revenue
con- cannot work in competitive market
what are the pros and cons of decreasing selling point
pros- helps stimulate sales and attract attention
cons- not able to meet demand
what are the pros and cons of running a marketing campaign
pros- persuade consumers to buy
cons- expensive
what action would you take from a rising in costs due to over stocking? (cash flow problem)
- find cheaper suppliers
- employ JIT to reduce inventory levels
what are the pros and cons to finding a cheaper supplier
pros- saves money
cons- unknown supplier
what are the pros and cons to employing JIT
pros- reduced storage
cons- cannot meet demand
what action would you take from funding investments by spending a lot on equipment etc? (cash flow problem)
- sell non-essential assets
- use leasing instead
- only make essential purchases
what are the pros and cons to selling non essential assets?
pro- releases funds
cons- no longer assets available
what are the pros and cons to leasing equipment etc?
pros- smaller payments
cons- more expensive over time
what are the pros and cons to only making essential purchases
pro- efficient expenditure
con- prevent business development if not able to use updated equipment
what action would you take from increased expenses on staff, extra promo, etc? (cash flow problem)
- make excess staff redundant
- less over time
- analyse expenses
what are the pros and cons to reducing staffing?
pro- excess costs are reduced
con- cost of redundancy
what are the pros and cons to analysing expenses over time?
pro- shows trends allowing action
con- takes time
