Cash Flow

Question 1

Examples of inflows?

Answer 1

Sales revenue
Capital
Loans
Grants

Question 2

Examples of outflows

Answer 2

Purchases
Rent and wages
Salaries

Question 3

What is cash flow

Answer 3

Cash flow refers to the amount of cash that flows into and out of the business over a period of time

Question 4

3 golden rules of cash flow

Answer 4

1. It tells us nothing about profit! A profitable business can have a poor cash flow
2. The closing balance of one month is the opening balance of the next
3. A negative closing balance DOES NOT mean that the business is bankrupt

Question 5

4 reasons why cash flow forecast is vital

Answer 5

1. Helps business identity problems before they happen
2. Helps the business to plan how to use any excess cash they may have
3. It can help to plan a project with minimal borrowing
4. It helps to support applications for borrowing - banks will expect to see a cash flow forecast