Business survival and cash cashflow

Question 1

Cash

Answer 1

the physical existence of money within the business

Question 2

Cash flow

Answer 2

the timings of cash flowing in and out of the business

Question 3

Cash inflow examples

Answer 3

Cash sales
Payments from debtors
Owners’ capital invested
Sale of assets
Bank loan

Question 4

cash outflow examples

Answer 4

Purchasing stock
Paying wages
Paying debts – bank loans, creditors
Purchasing assets

Question 5

importance of cash flows

Answer 5

a business as it needs to ensure a positive cash balance in order to be able to meet day to day expenses

Question 6

A cash flow statement

Answer 6

is a backward looking statement that shows what happened to cash inflows and outflows

Question 7

Where a cash flow statements usually presented?

Answer 7

business accounts

Question 8

net cash flow

Answer 8

cash inflows – cash outflows

Question 9

opening balance

Answer 9

How much the business has at the start of each month
For a new business in month 1 this will be 0
The closing balance for one month becomes the opening balance for the next

Question 10

closing balance

Answer 10

How much the business has at the end of each month
Calculated as: Opening balance + net cash flows

Question 11

Importance of Cash flow forecasts

Answer 11

To identify the timing and significance of any potential shortfalls
To identify possible correctiveaction To help secure finance from potential investors or the bank To give confidence about short term survival To provide a guide against which to measure actual cash flow

Question 12

Factors affecting cash flow

Answer 12

Transaction types
Sales
purchases

Question 13

resolving slow cash inflow

Answer 13

A firm may try to speed up cash inflows
This may include offering a discount for early payment or penalties for late payments
Businesses may need to chase customers for payment i.e. credit control
When a business is owed money from customers these are referred to as receivables
The business is still to receive the payment

Question 14

resolving quick cash outflow

Answer 14

If cash outflows are too quick this may cause cash flow problems
A firm may try to slow down cash outflows
This may include negotiating longer payment terms from suppliers
When a business owes money to suppliers these are referred to as payables
The business is still to make the payment

Question 15

what happens if cash funds are insufficient?

Answer 15

may mean an inability to meet short term debts
e.g overdraft

Question 16

how to improve cash flow

Answer 16

Capital Invested - Bringing in more investment funds.
Loans - Securing additional loans.
Cash Sales - Increasing sales that are paid for immediately in cash.
Debtor Payments - Ensuring that customers pay their outstanding invoices promptly.