Lesson 4 Flashcards
What is limited liability?
When a business has its own legal identity, meaning that its owners are not personally responsible for its debts.
What is unlimited liability?
When the business does not have its own legal identity and the owner is responsible for all the debts of the business.
What is a cash flow forecast?
A cash flow forecast is the day - to-day running of a business budget, it will show where the business will have a short call of cash (not enough to pay their short - term bills). The forecast allows the business to organise short - term cash borrowing to cover the shortfall e.g. An overdraft. A cash flow forecast is not about profit.
What is cash inflow (income)?
Money coming into the business. Cash into the business appears at the top of the cash flow forecast. This is called income. The income of a business is most likely to be sales revenue - this is the money that has come in from customers.
What is cash outflow (expenditure)?
Money leaving the business. Cash outflow is the cash that is being spent in the business. This is known US expenditure. This will be on bills such as: wages, insurance, advertising etc.
Definition of cash flow forecast?
A form of forward looking budget which enables a business to look at its potential revenue flow and its expenses. An estimate of the money a business will spend and receive within a year. Would typically appear on a business plan.
Definition of business plan?
A document that describes a businesses aims and objectives and how they can be achieved, and how the business intends to develop over time.
Definition of business plan?
A document that describes a businesses aims and objectives and how they can be achieved, and how the business intends to develop over time.
What is the uses of cash flowforecasts?
A business will prepare a cash flow forecast to help control and monitor cash in and out of a business. A good cash flow forecast may help the owner to secure a better deal on their finance e.g. Lower rate loan.
What are the limitations of cash flow forecasts?
- A cash flow forecast is only a 12 month snapshot which is very short term to make any concrete decisions about the business, they may need longer term finance.
- this is only a forecast - an estimate actual sales or expenses might be higher.
- it is not about profit, it is only about the cash in the business to meet the short -term debts.
