cash flow
Cards (16)
- what is meant by cash flow?refers to the movement of money into and out of a business; it is critical for paying suppliers, employees, and ensuring smooth business operations.
- what is a cash flow forecast?predicts how much cash will be available to a business in the future and how much cash will be required to maintain operations.
- what are the 3 parts of a cash flow forecast?
- revenue/income
- expenses/ outgoings
- balances
- how do you construct a cash flow forecast?
- include projected revenue
- expenses
- calculate net cash flow
- use this to calculate closing balances
- how is net cash flow calculated?net cash flow = total revenue - total expenses
- what is a positive cash flow?more inflow than outflow
- what is a negative revenue?more outflow than inflow
- why is cash flow forecasting important?helps identify potential cash shortages or surpluses, allowing businesses to plan for additional funding or investments
- how does a cash flow forecast affect stakeholders?
- provides clarity on financial health
- aids decision making
- ensures confidence in the future
- what are common causes of cash flow problems?
- poor income predictions
- late debtor payments
- rising costs
- increased competition
- changes in consumer spending pattersn
- what strategies can help a business improve cash flow?
- increased revenue
- reduced costs
- delay payments to creditors
- secure additional funding through loans, overdrafts, or invoice factoring
- advantages and disadvantages of delaying creditor payments...
- advantage: immediate cash flow relief
- disadvantages: risk of strained supplier relationships, delayed deliveries, or penalties
- benefits of cash flow forecasts...
- better planning financially
- identifies funding needs
- detects inconsistencies
- aids long term strategy formulation
- limitations of cash flow forecasts...
- requires time and accuracy
- may be unreliable if based on limited history
- becomes less accurate over longer timeframes
- what are some methods to solve short term cash flow problems?
- short term loans
- negotiating extended payment terms
- invoice factoring
- improving debtor collection process
- what is the difference between a cash flow statement and a cash flow forecast?a statement records past cash inflows and outflows, while a cash flow forecast predicts future cash movements.