Forecasting and Managing Cashflows Flashcards
Cashflow
Is the cash inflows and outflows of a business.
Insolvent
When a business cannot pay its short term debts.
Cashflow Forecast
The future estimate of the cash inflows and outflows of a business.
Net Cashflow
The difference between inflows and outflows.
Opening Balance
Cash held by a business at the start of the month.
Closing Balance
Cash held by the business at the end of the month, this becomes the opening balance for the next month
Benefits of Cashflow Forecasting
-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
Limitations of Cashflow Forecasting
-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
Causes of Cashflow Problems
-Lack of planning
-Poor credit control
-Allowing customers to take too long to pay debts
-Expanding too rapidly
-Unexpected events
Credit Control
Monitoring the debts to ensure that credit periods are not exceeded.
Bad Debt
Unpaid customer bills which are now unlikely to be paid.
Overtrading
Expanding a business too rapidly without obtaining all the necessary finances.
Methods of Improving Cashflow Problems
-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
Improving Cashflow by Managing Trade Recievables
-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
Improving Cashflow by Managing Trade Payables
-Buying supplies on credit not cash
-Extend the time to pay
