3.5.4 Improving cash flow and profitability

• Business may decide to focus on improving profit and profitability as part of their aims and objectives.
• Ways to increase profit and profitability

  • Reducing expenditure on fixed and variable costs
  • Increasing the selling price per item
• Cash Flow Management

  1. Cash Flow Forecasting

  2. Managing Working Capital

  3. Increasing Cash Inflows

  4. Reducing Cash Outflows

  5. Financing Options

  6. Monitoring and Control
• Cash Flow Forecasting

  Predicting future cash inflows and outflows over a specific period
• Managing Working Capital

  • Receivables (Debtors)
  • Payables (Creditors)
  • Inventory Management
• Receivables (Debtors)

  Speeding up the collection of payments from customers can improve cash flow
• Payables (Creditors)


  Delaying payments to suppliers can help retain cash longer
• Inventory Management

  Keeping inventory levels low reduces cash tied up in stock
• Increasing Cash Inflows


  • Increasing Sales Revenue
  • Pricing Strategies
  • Alternative Revenue Streams
• Increasing Sales Revenue

  Boosting sales is a primary way to increase cash inflows
• Pricing Strategies

  Adjusting pricing strategies can encourage more purchases
• Alternative Revenue Streams

  Diversifying income sources can provide additional cash flow
• Reducing Cash Outflows

  • Cost Control
  • Reducing Overhead Costs
• Cost Control

  Controlling expenses is crucial for maintaining a healthy cash flow
• Reducing Overhead Costs

  Reducing fixed costs can significantly impact cash flow
• Financing Options

  • Short-term Financing
  • Factoring
  • Asset Disposal
• Short-term Financing

  Options like bank overdrafts, credit lines, or short-term loans cover temporary cash flow shortages
• Factoring

  Selling accounts receivable to a third party at a discount provides immediate cash
• Asset Disposal

  Selling non-essential assets can free up cash
• Monitoring and Control

  • Regularly monitoring cash flow
  • Comparing actual cash flow with forecasts
  • Implementing strong financial controls
• Regularly monitoring cash flow is crucial.
• Implementing strong financial controls helps ensure that cash flow remains positive.