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6. Finance
6.2 Cash flow
Causes of cash flow problems:
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Cards (38)
Cash flow refers to the movement of money in and out of a
business
Cash flow is important because it allows a business to avoid
insolvency
.
True
Seasonal fluctuations can cause periodic cash shortages for businesses.
True
What is an example of a cash inflow from loans or investments?
Capital
What is an example of a cash outflow related to operational costs?
Rent
Poor cash flow management can lead to the inability to pay
bills
on time.
True
What is one reason why maintaining good cash flow is important for supplier relationships?
Paying bills on time
What does avoiding insolvency ensure for a business?
Financial distress prevention
What are loans and investments considered as in cash inflow?
Capital
Overspending
is a key cause of cash flow problems as it leads to more cash going out than coming
in
Poor cash flow management can hinder a business's ability to invest in growth opportunities.
True
What type of financing can businesses use to address temporary cash flow gaps?
Loans or factoring
Implementing strict budgeting and expense controls can address the cause of
overspending
By employing cash flow management strategies, businesses can maintain a healthy financial
position
What is one common cause of cash flow problems related to customer payments?
Late payments
What type of business growth can lead to cash flow problems?
Rapid growth
Asset sales result in money coming into the business, which is a type of cash
inflow
Repaying loans or lines of credit is a type of cash
outflow
What is one growth-related opportunity that cash flow problems can prevent a business from pursuing?
Expanding operations
Cash flow allows a
business
to invest in innovation and expansion.
True
Cash inflow represents money coming into a business, while cash outflow represents money leaving.
True
Operational costs include expenses like rent, wages, and utilities.
True
Order the causes of cash flow problems from common to severe:
1️⃣ Seasonal fluctuations
2️⃣ Overspending
3️⃣ Late payments
4️⃣ Rapid growth
What is the worst-case scenario resulting from poor cash flow management?
Insolvency and bankruptcy
Optimizing inventory levels and negotiating better payment terms with suppliers can improve
cash inflows
.
True
Match the cause of cash flow problems with its management strategy:
Late Payments ↔️ Use invoice factoring
Overspending ↔️ Implement expense controls
Seasonal Fluctuations ↔️ Secure short-term financing
Rapid Growth ↔️ Manage inventory levels
Excessive spending on expenses can lead to a shortage of
cash
Match the cash flow type with its definition:
Cash inflow ↔️ Money coming into the business
Cash outflow ↔️ Money leaving the business
Grants and subsidies are government support that contribute to
cash inflow
.
True
Order the steps to address cash flow problems:
1️⃣ Identify the causes of cash flow problems
2️⃣ Analyze the impact of poor cash flow management
3️⃣ Develop solutions to address cash flow challenges
Persistent cash flow problems can lead to insolvency and ultimately
bankruptcy
Cash flow
is the movement of money into (
cash inflow
) and out of (
cash outflow
) a business.
crucial
Sales Revenue
is income from selling goods or
services
What is one key cause of cash flow problems related to customers?
Late payments
What is one impact of poor cash flow management on relationships with suppliers?
Inability to pay bills
Cash Flow Forecasting and Budgeting
involves regularly forecasting cash inflows and
outflows
What is one management strategy for addressing late payments from customers?
Offer early payment discounts
What is one solution for improving cash inflows through inventory management?
Negotiate better payment terms