Forecasting and Managing Cashflows Flashcards

1
Q

Cashflow

A

Is the cash inflows and outflows of a business.

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2
Q

Insolvent

A

When a business cannot pay its short term debts.

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3
Q

Cashflow Forecast

A

The future estimate of the cash inflows and outflows of a business.

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4
Q

Net Cashflow

A

The difference between inflows and outflows.

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5
Q

Opening Balance

A

Cash held by a business at the start of the month.

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6
Q

Closing Balance

A

Cash held by the business at the end of the month, this becomes the opening balance for the next month

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7
Q

Benefits of Cashflow Forecasting

A

-Allows for getting bank loans or investors
-They show negative closing cashflows so plans can be made for addition finances
-It can show periods where negative net cashflow is excessive so the business can plan to reduce this

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8
Q

Limitations of Cashflow Forecasting

A

-Mistakes can be made in preparing revenue and costs forecast
-Unexpected cost increases could lead to major inaccuracies
-Incorrect assumptions could be made estimating the sales of the business due to poor market research

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9
Q

Causes of Cashflow Problems

A

-Lack of planning
-Poor credit control
-Allowing customers to take too long to pay debts
-Expanding too rapidly
-Unexpected events

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10
Q

Credit Control

A

Monitoring the debts to ensure that credit periods are not exceeded.

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11
Q

Bad Debt

A

Unpaid customer bills which are now unlikely to be paid.

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12
Q

Overtrading

A

Expanding a business too rapidly without obtaining all the necessary finances.

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13
Q

Methods of Improving Cashflow Problems

A

-Overdraft
-Short-term loan
-Sale of assets
-Sale and leaseback
-Managing trade receivables
-Managing trade payables
-Delaying capital expenditure
-Cutting overhead costs which don’t affect output
-Use leasing of capital equipment

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14
Q

Improving Cashflow by Managing Trade Recievables

A

-Not extending credit to customers or asking them to pay quickly
-Selling claims to debt factors
-Finding out whether new customers are creditworthy
-Giving discounts to customers who pay promptly

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15
Q

Improving Cashflow by Managing Trade Payables

A

-Buying supplies on credit not cash
-Extend the time to pay

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