1.3.3 cash + cash-flow

• Why is cash important to a business?

  To pay suppliers,

  Repay bank loans,

  Pay employees wages,

  Buy raw materials and products to sell,

  Promote the business,

  Pay overheads, e.g. rent and bills

  ‘Cash is king’
• What is the difference between cash and profit?

  Cash is the given amount of money available for a business to use to pay its debt, profit is a calculation of total revenue and total costs over a period of time
• What impacts cash flow?

  Change in sales revenue / change in demand,

  Change in costs,

  Seasonality in sales,

  Business expansion or contraction,

  Changes in stock levels,

  Credit terms can change
• What is Cashflow ?

  The money flowing in and out of a business on a day-to-day basis
• What’s a cash flow forecast?

  A prediction on how cash will flow through a business over a period of time - usually over a period of a year
• How can a cash flow forecast be useful for a business?

  It can identify periods where their could be a cash flow problem, and how to plan for the future - can help a business identify risks of negative cash flow
• What are the risks of negative cash flow?

  Business failure, insolvency - if the business cannot pay to cover its costs
• What’s cash inflows?

  All the money coming into the business, e.g. sales, rent received and loans
• What’s cash outflows?

  All the money moving out the business to pay for its costs, e.g. to pay suppliers, employees and overheads
• What’s receipts/ inflows?

  Money from owners, bank loans and cash from sales
• What’s outflows /payments?

  wages, raw materials, interest on loans
• What’s the opening balance?

  The amount of money in a business at the start of the month
• What’s the closing balance?

  The amount of money in a business at the end of a month
• How to calculate receipts?

  Net cash flow + total payments
• How to calculate total payments?

  Sum of payments or receipts - net cash flow
• How to calculate opening balance?

  The previous month's closing balance
• How to calculate closing balance?

  Net cash flow + opening balance
• How to calculate net cash flow?

  Cash inflows - cash outflows