cash flow Flashcards
cash flow
the amount of money flowing into A business; the income and a flow out ; expenditure at any time. the lack of it causes a business to fail
cash flow forecast
a statement showing the expected flow of money into and out of a business at a period of time.
positive cash flow
more money coming in than there is out
negative cash flow
more money coming out than there is going in
what is the difference between cash flow and profit
profit- annual revenue
cash flow- what happens at a period of time
limitations of cash flow forecast
seasonal business e.g. farmers may earn more money in certain times; more money goes in than out
the figures are always estimates
the price of goods and the cost of goods may change
forecast in the future may become less accurate.
net cash flow
inflow- minus outflow
closing balance
opening balance
+ net cash flow
how to deal with outflow issues
cut cost
slow down outflow by delaying payments and arranging longer terms with suppliers
how to deal with inflow issues
increase sales
speed up timing f inflows - shorter credit periods
use a debt factoring company
how are cash flow forecast useful
helps to plan for the future
identifies when a business has surplus or a shortage of cash in order to plan on what do do.
to avoid cash flow issues
to set targets
to obtain finance
break even
break even is when the total costs are equal to the total revenue. change in costs can affect it. no loss or profit is gained
break even formula
10000/50- costs
contribution
the amount per item that is left to pay fix cost and when the break even point is reach. this is also profit
price - variable cost
margin of safety
actual sales - break even levels of sales
how much you are selling above the break even. and how much you can fall before it reaches break even
improving break even
price- increase
cost- decrease
Break even analysis
good for start up businesses - how many do I need to sell to make a profit.
helps to work out whether forecast sales will be enough to make a profit.
may help to get a loan from bank
see impact of changing costs and prices
limitations to break even
forecast figures can be different from reality.
numbers of competitors may change
variables could increase
only works for one product
assumes all product are sold- some may be sold cheaper
it assumes fixed costs never change
revenue
revenue-the income of a business
break even -
where cost equal revenue and the business is making neither a lost or a profit.
fixed cost
- costs that do not vary with out put.
variable cost-
variable cost- costs that vary directly due to out put
