Cash flow

• Cash flow is the money that flows into and out of a business on a day-to-day basis
• Cash inflows

  • Income from sales
  • Loans from banks
  • Money invested by owners
• Cash outflows

  • Purchasing raw materials
  • Wages
  • Rent of a building
  • Interest on loands
  • Taxes
• Why is cash flow important

  If a business cannot pay its bills, it will fail.
• Benefits of a positive cash flow:

  • No borrowing required = no interest payments
  • A business is less likely to fail
  • A business will be able to arrange long-term loans
• A cash flow forecast is a plan of the expected inflows and outflows to and from a business over a period of time
• A cash flow statement is a record of the cash inflows and outflows that took place over an earlier period of time
• Causes of cash flow problems

  • Poor management
  • Business making a loss
  • Offering customers too long to pay
• Solutions to cash flow problems

  • Reschedule payments
  • Cut costs
  • Use overdrafts
  • Find new sources of income