321 Importance of cash

Question 1

What is the importance of cash to a business?

Answer 1

To pay suppliers, overheads, and employees, and to prevent business failure (insolvency)

Cash is essential for maintaining operations and relationships with stakeholders.

Question 2

What is a cash flow forecast?

Answer 2

A report that shows the expected movement of cash in and out of a business during a period of time (usually a year)

It should be included as part of a business plan.

Question 3

Who are suppliers?

Answer 3

Businesses that supply the business with stock or other supplies, e.g., raw materials

Suppliers are critical for a business’s inventory and production.

Question 4

What happens if a business has low cash regarding suppliers?

Answer 4

It cannot pay the suppliers, damaging relationships and potentially leading to insufficient raw materials for production.

Question 5

What are overheads?

Answer 5

Costs of a business that do not directly contribute to making the product or performing the service, such as:
* Administration costs
* Accounting costs
* Business insurance
* Utility bills
* Advertising costs

Question 6

Why is cash important for paying employees?

Answer 6

If a business has low cash, it may not be able to pay its employees, which could lead to increased labor turnover.

Question 7

What does the expression ‘Cash is king’ imply?

Answer 7

It emphasizes the critical importance of cash in a business.

Question 8

What is cash?

Answer 8

Money coming in and going out of a business on a day-to-day basis

Cash is considered the lifeblood of any business.

Question 9

What is profit?

Answer 9

Total revenue minus total costs (P = TR - TC)

Profit is expressed as a value, e.g., £2,000.

Question 10

What is the difference between cash and profit?

Answer 10

Cash is the money available to pay bills, while profit is what remains after all bills have been paid.

Question 11

Fill in the blank: A business with low levels of cash may not be able to pay __________.

Answer 11

suppliers

Question 12

Fill in the blank: A business may not be able to pay its __________ wages or salaries.

Answer 12

employees

Question 13

Fill in the blank: This is bad because employees may leave the business to find __________ elsewhere.

Answer 13

work

Question 14

Fill in the blank: This will lead to increased labor __________.

Answer 14

turnover