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7 Cards in this Set
- Front
- Back
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Cash Flow |
Inflow- The money received from customers and other sources. (Inflow is much harder to control than Outflow) Outflow- The money paid out to suppliers. (You could get time extended on a payment to increase cash flow) |
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Cash flow is attempted to be predicted by estimating when cash is expected to come in to and leave the business. |
Money is only recorded when cash changes hands. e.g. Paying a supplier.
Cash flow tells us NOTHING about profits!
The closing balance of one month is the opening balance of the next.
A negative closing balance of one month DOES NOT mean that the firm is bankrupt! |
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Closing and Opening balances of each month. A negative closing balance means there is money you have to take off the money that was brought forward last month. A negative cash flow simply means costs out weighed the sales of that month. |
Bank B/F - Money brought forward from last month. Bank C/F - Money you carry forward to next month. |
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Why is cash flow important? |
Think of a bath without a plug. Water comes in but will go straight out. A business MUST make sure that there is always cash available. So they must not let the bath run empty! |
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Cash flow forecast. |
A forecast is only useful if a business uses it.
It means that they must: Study the Forecast to identify any problems. Identify the cause by having a good cash flow understanding of what effects cash flow. Find the best solution for the circumstance. |
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Improving cash flow. |
Increase money coming in: Getting customers to pay quicker. Selling stocks to avoid holding too much. Obtaining external sources of finance. Decrease the money going out: Negotiate with suppliers to pay them later. Spreading costs over a number of months. Selling off assets. |
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The best way to improve cash flow. |
The best way to improve cash flow will depend on: What the business is trying to achieve. e.g. If a business is trying to open more stores , it might not be a good idea to close other stores. How realistic the business objectives are. How easy it will be to increase sales. How easy it is to reduce spending. So improving cash flow is not always easy.
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