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Paper 2
B6: Financs
Cash flow
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Lewis Hills
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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