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Management of Finance > Cash budgets, problems and solutions > Flashcards

Cash budgets, problems and solutions Flashcards

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1
Q

what is a budget

A

an estimated plan which firm expects to achieve within a period of time

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2
Q

what does cash inflow include

A

revenue from sale, payments from debtors, finance from borrowing, new equity investment, commission

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3
Q

what does cash outflow include

A

money spent on inventory, loan repayments, payment to creditors, running costs e.g. rent, electricity

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4
Q

what is the purposes of cash budgets

A

they are drawn up to aid effective decision making

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5
Q

what are the uses of budgets for managers

A
  • aids decision making from financial info
  • helps asses the quality of managers
  • motivates staff
  • empowers staff
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6
Q

what is cash flow

A

the physical movement of cash in and out of a business

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7
Q

what is a cash budget

A

it is a prediction of receipts and payments of cash

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8
Q

what does a statement of cash flow show?

A

the actual receipts and payments of cash over a time period

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9
Q

what impact does poor cash flow have on an organisation

A
  • cannot pay bills so supplies won’t be bought
  • increased borrowing, increases expenses
  • insufficient funds means plans cannot be made
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10
Q

what happens if there is a cash crisis

A

take action

  • find out why
  • put in place procedures
  • identify trends
  • hold staff accountable for actions
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11
Q

what actions can be taken to solve a falling for demand

cash flow problem

A
  • increase selling point
  • reduce selling point
  • run campaign/more promo
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12
Q

what are the pros and cons of increasing selling point

A

pro- more cash and revenue

con- cannot work in competitive market

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13
Q

what are the pros and cons of decreasing selling point

A

pros- helps stimulate sales and attract attention

cons- not able to meet demand

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14
Q

what are the pros and cons of running a marketing campaign

A

pros- persuade consumers to buy

cons- expensive

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15
Q

what action would you take from a rising in costs due to over stocking? (cash flow problem)

A
  • find cheaper suppliers

- employ JIT to reduce inventory levels

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16
Q

what are the pros and cons to finding a cheaper supplier

A

pros- saves money

cons- unknown supplier

17
Q

what are the pros and cons to employing JIT

A

pros- reduced storage

cons- cannot meet demand

18
Q

what action would you take from funding investments by spending a lot on equipment etc? (cash flow problem)

A
  • sell non-essential assets
  • use leasing instead
  • only make essential purchases
19
Q

what are the pros and cons to selling non essential assets?

A

pro- releases funds

cons- no longer assets available

20
Q

what are the pros and cons to leasing equipment etc?

A

pros- smaller payments

cons- more expensive over time

21
Q

what are the pros and cons to only making essential purchases

A

pro- efficient expenditure

con- prevent business development if not able to use updated equipment

22
Q

what action would you take from increased expenses on staff, extra promo, etc? (cash flow problem)

A
  • make excess staff redundant
  • less over time
  • analyse expenses
23
Q

what are the pros and cons to reducing staffing?

A

pro- excess costs are reduced

con- cost of redundancy

24
Q

what are the pros and cons to analysing expenses over time?

A

pro- shows trends allowing action

con- takes time

25
Q

what action would you take from being under investment? (cash flow problem)

A

-owners stop taking high drawings of poor liquidity

26
Q

what are the pros and cons to owners not taking high drawings?

A

pro- cash funds retained for business use

con- owner may be unwilling to reduce drawings

27
Q

what action would you take from poor credit management? (cash flow problem)

A
  • sell debt of debtors to factor company
  • increase demand for payment from debtors
  • find a supplier with better terms and conditions
28
Q

what are the pros and cons to selling debt of debtors to the factor company?

A

pro- receive an amount of the money immediately

con- fee to pay and do not receive the full amount

29
Q

what are the pros and cons to increasing the demand for payment from the debtors?

A

pro- unreliable customer stops buying and no bad debt

con- admin costs

30
Q

what are the pros and cons to finding a supplier with better terms and conditions

A

pro- might be able to sell the product before payment

con- takes time to build trust

31
Q

what are the different cash flow problems

A
  • falling demands
  • rising costs
  • increasing expenses
  • poor credit management
  • under investment

Management of Finance (8 decks)

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