Theme 1.3 - Cash Flow Flashcards
What is cash?
The asset that the business holds which allows it to buy supplies and pay wages
What is the difference between salary and wages?
Salary is how much you earn a year, wages is how much you earn in a period of time (hourly, daily, weekly, monthly)
What is gross PA?
Salary per annum after tax
What are overheads?
Costs
What does cash allow a business to do?
Make decisions
What happens when a company is insolvent?
They go into administration, then liquidation, the they cease to trade
What are some examples of what cash flow can allow a business owner to do?
Take on more staff
Opening a new branch
Identifying risk - run out of cash and need to borrow money
Taking money out of the business to invest or to. use as reward
What is a cash flow statement?
A cash flow statement is a record of the cash inflows and outflows to a business in the past
What can cash flow statements be used for?
It can be used to monitor the performance of the business
It can be used to compare performance from month to month/year to year
Past cash flow can be compared with predicted cash flow
What do businesses use cash flow forecasts for?
Business use cash flow forecasts to plant future strategy. If they think the cash flow will be negative they can adapt their strategy
They need to draw them up to get bank loans
Any agency giving a grant will want cash flow forecasts as a part of the business plan
What is administration?
Aiming to help the company to repay debts to escape insolvency
What is liquidation?
The process of selling all assets before completely dissolving the company
What are internal sources of finance?
Finances which are raised internally, without increasing debts of the business
What are some examples of internal sources of finance?
Personal savings
Retained profit
Sales of unwanted assets
What are external sources of finance?
Finance provided by people or institutions outside the business, creating a debt that will require payment
