Cash Flow

• What does cash flow describe in a business?

  Movements of cash into and out of a business
• Why is cash flow considered dynamic?

  It is often unpredictable and constantly changing
• When does cash flow into a bank account?

  When customers pay for sales
• What is the difference between cash inflows and cash outflows?

  Cash inflows are movements into a business
• What is "net cash flow"?

  Difference between cash inflows and outflows
• Why is managing cash flow crucial for businesses?

  To avoid running out of money
• What are the main types of cash inflows?

  • Cash sales
  • Receipts from trade customers
  • Sale of spare assets
  • Investment of share capital
  • Personal funds invested
  • Receipt of bank loan
  • Government grants
  • Receipts from factoring
• What are the main types of cash outflows?

  • Payment of wages & salaries
  • Payment of suppliers
  • Buying equipment
  • Interest on bank loan or overdraft
  • Payment of dividends
  • Repayment of loans
  • Payment of leasing or hire purchase rentals
  • Income tax, VAT & Corporation tax
• What defines a cash flow problem?

  Not having enough cash to pay liabilities
• What are the main causes of cash flow problems?

  Low profits, over-investment, and too much stock
• How does low profits lead to cash flow problems?

  It reduces the cash available from trading
• What happens with over-investment in capacity?

  It ties up cash in fixed assets
• Why is holding too much stock a problem?

  It ties up cash and risks obsolescence
• What is the risk of allowing customers too much credit?

  Late payments strain cash flow
• What is overtrading?

  Expanding too quickly, straining finances
• What are unexpected changes in cash flow?

  Unforeseen events affecting cash flow
• How does seasonal demand affect cash flow?

  Requires cash outflows before inflows
• What are the keys to handling cash flow problems?

  • Reliable cash flow forecasting system
  • Actively manage working capital
  • Choose appropriate finance sources
• What makes a good cash flow forecast?

  • Regular updates
  • Sensible assumptions
  • Allows for unexpected changes
  • Regular reviews by management
• What does working capital management focus on?

  Balancing credit and timely payments
• What is credit control?

  Managing how much credit to give customers
• What is factoring in cash flow management?

  Selling debtors to generate cash
• What is trade credit?

  Amounts owed to suppliers for goods
• What is the risk of delaying payments to suppliers?

  It can damage credit reputation
• What does stock refer to in a business?

  Goods awaiting use or sale
• Why is stockholding costly?

  It incurs storage and management expenses
• What are strategies for effective stock control?

  • Keep smaller balances (just in time)
  • Computerize ordering for efficiency
  • Improve stock control
• What is the distinction between cash flow and profit?

  Cash flow is actual cash movement