Cash flow Flashcards
What is cash flow?
The movement money into and out of a business over a period of time.
What is cash inflow?
Cash inflows are the movements of money into a business and include owners’ capital, loan capital and sales revenue.
What is cash out flow?
The movements of money out of a business and include all of the businesses fixed and variable costs.
Whats the difference between cash flow and profit?
A profitable business can fail if it runs out of cash.
What is cash flow forecast?
Document that predicts the value and timing of future cash inflows and outflows over a period of time.
Why would a business have cash flow problems?
Cash flow problems occur when a business has insufficient cash to cover their day to to day running costs.
What are consequences of cashflow problems?
1) Inability to pay wages.
2) Cannot pay for supplies.
3) Fail to meet debt obligations and incur interest charges.
4) Over utilisation of overdraft facility.
5) Loss of confidence of employees/ suppliers/ investors.
6) Missed opportunities.
What are solutions of cash flow problems?
1) Reducing cash out flow.
2) Increasing cash inflow.
3) Re-scheduling payments,
4) Overdrafts.
5) Finding new sources of finance.
Benefits of reducing cash outflow.
reduction in cash outflow improves cash flow if inflow remains constant.
Benefits of increasing cash inflow.
Increasing cash inflow whilst outflow remains constant will improve cash flow.
Benefits of re-scheduling payments.
This is a form of reducing outflows that delays payment.
Benefits of overdrafts.
1) Allows business flexibility to pay unexpected costs.
2) Business can deal with short term cash flow issues.
3) These can be long
