Ch 23 - Cash flow Flashcards
(34 cards)
what is cash flow?
actual money coming in and going out (cash inflows and cash outflows) of a business in a certain period of time
what are cash inflows? used for?
actual money (not credit) received by business over a period of time
–> its used to keep business running (like buying raw materials)
examples of cash inflows? [6]
-donations
-sale of assets
-sales
-loans
-payment of debtors
-investors
what is cash outflow?
actual, physical money that is paid out by a business over a period of time
examples of cash outflows? [7]
-purchasing goods / materials
-paying salaries
-fixed costs (rent)
-variable costs (fuel, food)
-purchasing non current assets
-repaying loans
-paying creditors
cash flow cycle?
buying raw materials –> finished products –> sell products –> cash received –> cash needed to pay for –> buying raw materials –> …
what happens when there is quicker cash flow? slower cash flow cycle?
money earned quicker
working capital increases
what is insolvent?
business having no money
what is opening cash / opening balance?
money at the beginning of the month
closing cash formula?
net cash flow + opening cash
net cash flow formula?
total cash inflow - total cash outflow
what to do if there’s a negative closing cash?
business can’t operate so:
-cash inflow needs to increased
-cash outflow needs to be reduced
-take short term bank loan / bank overdraft
how to increase sales?
-increase marketing
3 uses of cash flow forecasts?
-planning
–> predictions
–> can manage / plan ways to cut expenses (decrease outflow) and increase inflow
-managing cash flow
–> short of cash? extra cash?
-starting up business
–> need to know how much money is needed
-running business
–> borrowing money should be done in advance
-keep bank manager informed
–> so that they can provide loans and business can get a bank loan
–> banks need to see if business can repay loans so banks will ask for the forecast
what can you do with extra cash?
-invest
-grow / develop business
-buy technology
-grow branches
-put in bank
-buy property
4 ways to solve cash flow problem?
-bank loan
-delayed payment to suppliers
-ask customer to pay quick
-delayed purchase of equipment
advantages of: [2]
-bank loan
-ask customer to pay quick
-get money
-solve problem
advantages of: [2]
-delayed purchase of equipment
-delaying payment to suppliers
-cash outflow decreases
-problem solved
disadvantages of bank loans? [2]
-need to return money with interest
-outflow
disadvantages of delaying payment to suppliers? [4]
-can sue
-no discounts
-supplier is not happy
-pay more next month (outflow)
disadvantages of asking customers to pay quick [1]
lose customers to competitors
disadvantages of delayed purchase of equipment [3]
-no equipment
-less goods produced
-function of business is pampered
2 ways to solve cash flow problem long term? advantage? disadvantage?
-get shares / partners
-cut costs and increase efficiency
-develop new products
-increase capital
adv: saving business
dis: losing control, product quality decreases due to the complaints of workers, need cash for development and takes long time
what is working capital?
continuous / re-occuring capital available to a business for short term / day to day basis expenses
