Cash Flow Flashcards
What is cash flow?
Cash flow is the amount of money moving in and out of a business on a day to day basis
Importance of cash flow:
- enough money to pay workers
- enables the business not to borrow
- cash to pay its bills on time to suppliers
What is a receipt and payment?
Receipt- money in the business. E.g interest on savings, loan from the bank.
Payments- money out of the business. E.g interest on loan
What is net cash flow and how to calculate it?
Net cash flow is the difference between the cash coming into the business and the cash flowing out.
Net cash flow = recipes - payments
(Number)= negative number
What is opening and closing balance?
Opening balance- what you have at the start of the month
Closing balance- what you have at the end of the month.
Calculating closing balance= net cash flow + opening balance
What is a cash flow forecast?
A financial plan to predict receipts and payments over a future period (1 year).
Why is it useful to forecast cash flow?
- identify if/when business has a cash flow problem
- helps business to plan ahead
- identify/find sources of finance to resolve
- show it to a bank- gain a loan
- can assess whether bus is viable
What is liquidity?
If a business experience problems where they don’t have enough cash to cover their payments they cannot continue to trade.
What amuses cash flow problems?
- if a business overspends
- unexpected events
- mismanaging your cash flows- lack of experience
- scheduling of payments is wrong
- seasonal changes
- external factors. E.g competitor, economy
- giving customers too much trade credit
How can cash flow be resolved?
- loan
- borrow money from families and friends
- overdraft
- ask for trade credit
- apply for a grant
- sell unused assets
- get rid of stock
- investor/ business angels
