Cash Flow

• What is cash flow?

  The money flowing in and out daily
• What is turnover (revenue)?

  The value of sales or income
• How do you calculate turnover?

  Selling Price × Quantity Sold
• What are the ways to improve cash flow position?

  • Reducing staff
  • Buying cheaper materials
  • Delaying payment to creditors
  • Chasing up bad debtors
  • Increasing promotions
  • Raising finance/selling assets
  • Increase/reduce price
• What is a consequence of reducing staff?

  It may lead to inferior service
• What is a potential downside of buying cheaper materials?

  Customers may be unhappy with quality
• What is a risk of delaying payment to creditors?

  Suppliers may refuse trade credit
• What might happen when chasing up bad debtors?

  It may cause cash problems for customers
• What is a potential issue with increasing promotions?

  It may have no impact on sales
• What is a consequence of raising finance from banks?

  Money loaned must be paid back
• What could happen if prices are increased?

  Revenue may fall if customers decrease
• What is net cash flow?

  Predicted profit on a cash flow forecast
• How do you calculate net cash flow?

  Net Cash Flow = Total Inflow – Total Outflow
• What is the closing balance?

  Cash remaining at the end of a month
• How do you calculate the closing balance?

  Closing Balance = Opening Balance + Net Cash Flow
• What is the opening balance?

  Cash available at the start of a month
• What are examples of business expenses?


  • Rent
  • Salary
  • Wages
  • Utilities
  • Tax
  • Fuel
  • Insurance
  • Marketing
  • Telephone
  • Broadband
  • Business rates
• What is a cash flow forecast?

  Expected inflows and outflows over time
• Why are cash flows important for a business?

  They help in planning and securing loans
• How can cash flow forecasts help banks?

  They suggest ability to repay loans
• What external events can affect actual cash flow?

  • Increased/decreased taxes
  • Interest rates changes
  • Legislation changes
  • Weather impacts
  • Increase in costs
  • Inflation
  • Competition
  • Equipment breakage
• How do increased taxes affect cash flow?

  They change the amount of cash held
• What is the impact of interest rates on cash flow?

  They change cash given to banks
• How can legislation affect cash flow?

  It may change services offered
• How does weather impact cash flow?

  It changes goods sold and customer spending
• What happens when costs increase?

  It reduces available cash for operations
• How does inflation affect cash flow?

  It increases costs and reduces customers
• What is the effect of competition on cash flow?

  It attracts customers away from the business
• How does equipment breakage affect cash flow?

  It leads to fewer items to sell
• What are common cash flow problems?

  Lack of working capital and profitability
• What is an overdraft?

  A facility allowing withdrawal beyond balance
• What does being at limit mean in terms of overdraft?

  It means maximum withdrawal has been reached