cash and cash flow

• • Cash 

  • The term used to describe the money a firm holds in notes and coins and in its bank accounts
• • cash is the only thing that pays bills and if bills are unpaid then the company dies.
• • you need cash during (a and b)

  1. start up - building, decor, staff, training, buying stock blah blah
  2. times of rapid growth - investment needed for big premises and more staff
• • importance of cash to a business
  • to pay suppliers, overheads, and employees
  • to prevent business failure -(insolvency)
  • the difference between cash and profit
• • Payments to suppliers
  • Materials and services for business to operate
  • No money for supplies means business cant operate
• • pay for employees
  • employees right to pay when it is promised to mage their own finances
• • overheads and bills
  • Rent rates and utility bills
• • lack of cash forces businesses to close. If cash isn’t managed the business can’t pay their bills , aka insolvency
• • insolvency

  • when a business lacks the cash to pay its debts
• • Difference between cash and profit :
  • Basically when a sae is made the business makes profit however some products like sofas and cars have credit, so you can pay at a later date, which means the business does not immediately receive all that cash
• Cash flow 
-

  the movement of money into and out of the business’s bank account
• • overdraft 
-
  • the amount of the agreed overdraft facility that the business uses
• • overdraft facility 
-
  • an agreed maximum level of overdraft
• • cash flow management
  • negotiate an overdraft - if a business needs short term supply of cash, bank has already authorised it
  • keep costs under control
  • keep cash coming in - customers better pay up when they are due to
• cash flow forecast is a table that shows

  • bank balance at start of each month
  • cash inflows for the month
  • cash outflows for the month
  • the net cash flow for the month (inflows minus outflows )
  • the bank balance at the end of the month
• successful cash flow forecasting relies on -

  • accurate prediction of monthly sales ‘accurate prediction of when customers will pay for what they have bought
  • careful allowance for operating costs and the timing of payments for these
  • careful allowance for other flows of cash, both out of and into the business
• • cash flow forecast -
  • 
shows estimates of the likely flows of cash over the coming month and overall state of the bank balance
• Opening balance 
-

  the amount of cash in the bank at the start of the month
• • closing balance 
-
  • the amount of cash left in the bank at the end of the month
• net cash flow 
-

  the figure showing “cash in” minus “cash out” over the course of a month
• • net cash flow CALCULATION
  • cash in - cash out of that month
• To improve cash flow

  • cut stock levels
  • increase credit taken from suppliers
  • reduce credit to customers