cash budgets Flashcards
purpose of cash budgeting
- Monitor and control – preparing a cash budget provides the business with a tool for comparison of budgeted with actual results obtained from other financial statements;
- Measure performance of the organisation as a whole, or individual departments or sections within the organisation;
- Set targets – provides targets (limits) for managers and employees to work towards;
- To highlight anticipated periods of poor cash flow (deficit) and provide time for corrective action;
- To highlight anticipated periods of surplus to enable organisation to invest for the future;
- As part of a Business Plan which would be drawn up by a new business prior to starting up; or by an existing business prior to expansion
solutions to cash flow problems
- find a cheaper supplier
- lease machinery or equipment
- Sell any assets that are not being used effectively
- Apply for a loan or overdraft from the bank
- Arrange extra time to pay bills from supplier (increase credit terms)
- Increase advertising or sales promotion
find a cheaper supplier
This will reduce the cost of purchases meaning more cash available from each sale
lease machinery or equipment
This allows a business to spread the cost of the purchase over many months
sell any assets that are not being used effectively
This will release cash that can be used elsewhere in the business
apply for loan or overdraft from the bank
This will help to cover immediate cash flow problems but will need to be paid back over time with interest
offer discounts for customers paying for goods quickly
This will encourage customers to pay quickly and reduce the number of people who owe the business money
arrange extra time to pay bills from supplier (increase credit terms)
increase advertising or sales promotions
This will increase sales meaning more cash coming into the business
