Cash and cash flow

• Cash flow is the movement of money into and out of a business' bank accounts.
• The management of cash flow is important as it can prevent a business from failing.
• Cash flow is the way that money moves in and out of a business and its bank accounts.
• Cash flow is different from profit in that it measures the net amount of cash a business has, while profit is an accounting measure that does not consider cash flow.
• Calculating and interpreting cash flow forecasts is an important part of managing cash flow.
• Net cash flow is the difference between opening and closing balance in a cash flow statement.
• Opening and closing balance in a cash flow statement is the starting and ending point of cash flow.
• Cash flow is important for a business as it allows it to pay its bills, such as payments to suppliers and employees.
• A business can arrange credit with its suppliers, allowing it to pay for raw materials or stock at a later date.
• Credit arrangements can also allow customers to pay for products or services within 30, 60 or 90 days.
• If a business allows its customers credit terms, it is a sensible option to also negotiate longer credit terms with its suppliers.
• Cash flow is the way that money moves in and out of a business and its bank accounts
• Failing to manage cash and cash flow can cause business failure, even if a business has many customers
• Negative cash flow is when a business has more money going out than coming in, leading to difficulties in paying bills without borrowing money or raising additional capital
• Businesses can suffer cash flow problems at start-up when large amounts of money are needed to get the business started, or during rapid growth when the business needs to grow quickly but cannot keep up with the cash being paid out
• Insolvency happens when a business runs out of cash and can no longer pay its bills
• Positive cash flow, where more money comes in than goes out, is crucial to reduce the risk of failure and insolvency
• Three steps to get out of negative cash flow: negotiate an overdraft facility, keep costs under control, and keep cash coming into the business by arranging sensible credit arrangements with suppliers and customers
• Cash flow is the way that money moves in and out of a business and its bank accounts
• Profit is the amount of money made after all costs are deducted from the revenue
• Profit is usually calculated on an annual basis, but calculating it monthly can help a business by showing that it is solvent and indicating whether it will be able to achieve its profit targets
• Cash flow is the movement of money in and out of a business over a period of time
• Cash flow forecasting involves predicting the future flow of cash in and out of a business’ bank accounts, usually for a 12-month period
• Cash flow forecasting is crucial for new businesses, fast-growing businesses, and businesses with unpredictable sales patterns like seasonal businesses
• A cash flow forecast helps a business plan for the future and make decisions such as employing more staff, opening a new branch, investing in a new business, or rewarding the owners for their success
• Creating a cash flow forecast for a new business can be challenging as there are no previous figures to estimate future cash inflows and outflows, requiring the entrepreneur to make educated guesses
• An established business can compare its actual cash flow with its forecast to monitor performance and make necessary changes
• The management of cash and cash flow is crucial to prevent a business from failing
• Cash flow is the movement of money in and out of a business and its bank accounts
• Net cash flow is calculated as the difference between all cash inflows and all cash outflows of a business: net cash flow = cash inflows – cash outflows
• Example of a cash flow forecast:

  • Cash inflows: Sales £8,500, £5,000, £4,000; Rent received £1,000 each month
  • Cash outflows: Wages £1,000, £800, £700; Raw materials £1,000, £800, £500; Marketing £200 each month; Rent £1,500 each month; Loan repayment £150 each month
  • Net cash flow: £5,650, £2,550, £1,950
  • Opening balance: £0, £5,650, £8,200
  • Closing balance: £5,650, £8,200, £10,150
• The management of cash and cash flow is crucial to prevent a business from failing
• Cash flow is the movement of money in and out of a business and its bank accounts
• Opening balance:

  • The amount of money a business starts with at the beginning of the reporting period
  • Opening balance = closing balance of the previous period
  • If there is no previous period, then the opening balance will be zero