Topic 1.3.3 Cash & cash flow

Question 1

What does cash mean in business terms?

Answer 1

The physical money a business has . This can be notes and coins or money in the bank.

Question 2

Why is cash important to a business?

Answer 2

Without cash a business cannot survive in the medium to long term. This will lead to insolvency (business failure)

Question 3

Without cash a business cannnot…

Answer 3

-Pay suppliers
-Buy new raw materials or stock
-Pay workers
-operate machinery
-Market its products

Question 4

What is cash flow?

Answer 4

the total amount of money being transferred into and out of a business

Question 5

What is the money moving into a business known as?

Answer 5

Income/reciepts

Question 6

What is the money moving out of a business known as?

Answer 6

Expenses/payments

Question 7

What is a cash flow problem?

Answer 7

When a business has more money going out than is coming in- this means it has a negative cash flow at the end of a period (e.g a month)

Question 8

What are cash flow forecasts used for?

Answer 8

To help a business understand the flow of cash in and out of the business. It also shows whether the business will have a positive or negative closing balance.

Question 9

What is a closing balance?

Answer 9

The amount of money in a business at the end of the month

Question 10

What is the importance of cash flow forecasts?

Answer 10

A business normally produces a forecast of their cash flow balance before the start of the year. This allows the business to spot any potential cash shortfalls in advance by identifying negative closing balances.

Question 11

What is net cash flow?

Answer 11

total inflow - total outflow

Question 12

Give 3 solutions to cash flow problems

Answer 12

Reschedule payments
Overdrafts
Reduce cash outflow
Increase cash inflow
Find a new source of finance
Reschedule income

Question 13

Explain how you can reschedule payments to resolve a cash flow problem

Answer 13

You can reschedule payments (i.e slow down cash out flow) by negotiation credit terms with supplier, e.g buy now pay in 30 days.

Question 14

Explain how you can arrange an overdraft to resolve a cash flow problem

Answer 14

You can prearrange an overdraft with the bank to provide a short term source of finance.

Question 15

Explain how you can reduce cash outflow to resolve a cash flow problem

Answer 15

You can reduce costs (e.g find a cheaper supplier)

Question 16

Explain how you can increase cash inflow to resolve a cash flow problem

Answer 16

You can increase marketing in order to attract more customers (this could be costly however will be good in the long term for the business)

Question 17

Explain how finding a new source of finance could resolve a cash flow problem

Answer 17

You could find a new source of finance and bring new funds into the business by getting people to invest in your business (share capital or venture capital)

Question 18

Explain how rescheduling income could resolve a cash flow problem

Answer 18

You could speed up the flow of cash coming into your business, e.g get customers to pay quicker- maybe even through a deposit when you are selling a service.