Preventing business failure

• What is the importance of cash flow in a business?

  It can prevent business failure
• What does cash flow refer to in a business?

  Money moving in and out of a business
• What can cause a business to fail?

  Poor management of cash flow
• What is negative cash flow?

  More money going out than coming in
• What happens if a business has negative cash flow?

  It cannot pay its bills without borrowing
• When can a business suffer cash flow problems?

  At start-up and during rapid growth
• What is a start-up business?

  A new business with few employees
• What might a business need to invest in at start-up?

  Equipment, stock, rent, and staff costs
• What does insolvency mean for a business?

  Running out of cash to pay bills
• What is positive cash flow?

  More money coming in than going out
• What are three steps to resolve negative cash flow?

  Negotiate an overdraft, control costs, ensure cash inflow
• What is an overdraft facility?

  An agreement to overspend on an account
• Why is it important to keep costs under control?

  To maintain positive cash flow
• What should businesses arrange with suppliers and customers?

  Sensible credit arrangements
• What is credit in a business context?

  Money allowed to use and repay later
• What can happen if customers pay on credit?

  It can affect the business's cash flow
• What are the consequences of failing to manage cash flow?

  • Business failure
  • Inability to pay bills
  • Risk of insolvency
• What are the key factors that contribute to cash flow problems?

  1. Start-up costs
  2. Rapid growth expenses
  3. Customer payment delays
• What strategies can businesses use to improve cash flow?

  • Negotiate overdrafts
  • Control costs
  • Arrange credit with suppliers
• What is the difference between cash and profit?

  • Cash: Actual money flow
  • Profit: Revenue minus expenses
• What are the implications of having customers who do not pay on time?

  • Negative cash flow
  • Potential insolvency
  • Difficulty in meeting obligations