Cash and cash flow revisited

• What does "cash" refer to in business terms?

  £ in the bank account
• What are cash inflows?

  £ coming into the bank account
• What are cash outflows?

  £ leaving the bank accounts
• How is net cash flow calculated?

  Inflows - Outflows
• What indicates a positive cash flow?

  Inflows > Outflows
• What indicates a negative cash flow?

  Inflows < Outflows
• What is the opening balance?

  Approximate amount in bank on 1st
• What is the closing balance?

  Amount in bank on last day of month
• What does insolvency mean for a business?

  The business is unable to pay its debts
• Why is cash important for a business?

  Needed to pay regular bills and avoid insolvency
• What can a lack of cash cause for a business?

  Insolvency and business failure
• What is the difference between cash and profit?

  Cash flow in and out at financial year end
• What can a business do if it has a negative cash flow?

  Use overdraft or trade credit
• How can a business improve its cash flow?

  Collect existing debts more quickly
• What is one way to manage negative cash flow?

  Sell fewer products on credit
• How can trade credit help a business with cash flow?

  It allows delayed payment to suppliers
• What is an overdraft?

  A facility to withdraw more than balance
• How does cash flow differ from profit in a business?

  Cash flow tracks actual cash movement
• What is the formula for calculating the closing balance in cash flow?

  Closing balance = opening balance + net cash flow
• What does a negative cash flow indicate?

  Not enough cash to cover expenses
• Why is it important to have enough cash in the bank?

  To cover expenses and avoid overdrafts
• What does a cash flow forecast show?

  Timings of inflow and outflow
• How is a cash flow forecast used in a business plan?

  It is included to project financial health
• What makes predicting cash flow difficult?

  Unexpected costs and hard-to-predict sales
• Why might an entrepreneur find cash flow forecasting useful?

  To make informed decisions without past figures
• What risk does a start-up face regarding cash flow?

  Risk of insolvency due to cash shortages
• What are the key components of cash flow management?

  • Inflows: cash received
  • Outflows: cash spent
  • Opening balance: starting cash amount
  • Closing balance: ending cash amount
  • Net cash flow: difference between inflows and outflows
• What are the implications of negative cash flow for a business?

  • Insufficient funds to cover expenses
  • Potential need for overdraft
  • Increased risk of insolvency
  • Difficulty in making future investments