Cash flow

Cards (9)

  • 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