Cash flow

• What are cash flow and profit?

  Cash flow is inflows minus outflows
• How is profit calculated?

  Profit is revenue minus costs
• What are three reasons why cash flow and profit differ?

  1. Credit sales delay cash inflow
  2. Depreciation affects asset value
  3. Bank loans create cash inflow, not revenue
• What happens when you offer credit for a sale?

  You record revenue without cash inflow
• What is depreciation in terms of non-current assets?

  Depreciation is the loss of asset value
• If a car is bought for $£10,000$ and is worth $£9,000$ after a year, what is the depreciation?


  Depreciation is $£1,000$
• What happens when you take out a bank loan?

  It creates cash inflow but is not revenue
• Why is positive cash flow important for a business?

  It allows timely payments to suppliers and employees
• What are the pros of having positive cash flow?

  • Pay suppliers and employees on time
  • Handle unforeseen events
  • Take advantage of opportunities
  • Facilitate business expansion
• What are the consequences of poor cash flow?

  It may lead to inability to pay suppliers
• What can happen if you cannot pay employees on time?

  Employees may become demotivated
• What is a potential outcome of poor cash flow management?

  You could become bankrupt or insolvent
• How does poor cash flow affect business expansion?

  It makes expansion harder
• What are the negative effects of poor cash flow?

  • Inability to pay suppliers on time
  • Ruined supplier relationships
  • Employee demotivation
  • Difficulty handling unforeseen events
  • Risk of bankruptcy or insolvency
  • Reduced ability to expand business
• What is a common reason for poor cash flow?

  Poor sales
• How does poor sales affect cash flow?

  It leads to lower revenue and cash flow
• What is overtrading in the context of cash flow?

  Buying too much stock without selling
• What is a consequence of overtrading?

  It leads to wasted cash on unsold stock
• What method can help reduce overtrading issues?

  Switching to just-in-time methods
• What do poor creditor and debtor management refer to?

  Issues with money owed to and by the business
• What happens if debtors pay you slower than you pay creditors?

  It indicates a cash flow issue
• Why is cash flow forecasting important?

  It helps anticipate financial situations
• What can happen if a business does not forecast cash flow?

  It leads to poor business management
• What is a consequence of poor cash flow regarding day-to-day expenses?

  Inability to pay bills
• What does a negative working capital indicate?

  Cash flow issues
• What can happen if employees do not receive their wages?

  It can sap their motivation
• What are the potential sources of finance for poor cash flow?

  Debt or equity financing
• What is a consequence of choosing debt financing?

  Increased interest payments
• What happens to supplier relationships with poor cash flow?

  Suppliers may reduce credit terms
• How can poor cash flow affect supplier goodwill?

  It may lead to a breakdown in relationships
• What are the main causes of poor cash flow?

  • Poor sales leading to lower revenue
  • Overtrading by buying too much stock
  • Poor creditor and debtor management
  • Lack of cash flow forecasting
• What are the consequences of poor cash flow?

  • Inability to pay day-to-day expenses
  • Difficulty in paying employee wages
  • Need for external sources of finance
  • Supplier reluctance to extend credit
• What strategies can improve cash flow management?

  • Implement cash flow forecasting
  • Renegotiate terms with creditors and debtors
  • Switch to just-in-time inventory methods
  • Monitor sales and stock levels closely
• What is the first solution to cash flow problems mentioned?

  Rescheduling payments
• How can rescheduling payments help with cash flow problems?

  It increases cash inflows and decreases outflows
• How can you increase the speed of receiving cash inflows?

  Request customers to pay sooner
• What is a potential risk of requesting customers to pay in 30 days instead of 90 days?

  You may lose sales from some customers
• What is the second aspect of rescheduling payments?

  Decreasing the speed of cash outflows
• How can you decrease cash outflows?

  Delay payments to suppliers
• What is a potential consequence of delaying payments to suppliers?

  You might damage your relationship with them