Chapter 12: Financial management strategies

Question 1

Cash flow management

What is cash flow management

Answer 1

Involves managing the movement of cash in and out of a business over a period of time – matching cash flow in with cash flow out is essential

Question 2

Under what circumstances will a business have cash flow problems?

Answer 2

• If there is more money going out than coming in
• If money must be paid out before cash payments have been received

Question 3

Cash flow management

Why is cash flow management so important?

Answer 3

Shortfalls of cash over longer periods are unsustainable and will lead to insolvency - cash flow problems are one of the main reasons businesses fail.

Question 4

Businesses may experience cash flow problems due to:

Answer 4

Slow collection of accounts receivable
Failing to perform credit checks on debtors
Lead to slow collection or even no payment at all
Growing too quickly
Tightened lending conditions