Cash flows

• What are cash inflows?

  Money coming into a business

  examples:

  • Cash & credit sales
  • Loans
  • Capital introduced
  • Sale of assets
  • Bank interest received
• What are cash outflows?

  Money going out of a business

  examples:

  • Wages
  • Rates
  • Rent
  • VAT
  • Cash & credit purchases
  • Utilities etc
• What is VAT (Value added tax)

  Charged on most goods & services - business must be registered for VAT if its sales go over the VAT threshold (£85000)
• What is a cash flow forecast?

  A prediction of business inflows and outflows to identify potential cash flow problems.
• Uses of a cash flow forecast

  • Planning
  • Monitoring
  • Target setting
  • Control
• Ways to improve cash flow

  • Encourage debtors to pay quicker
  • Reduce unnecessary expenses
  • Sell debts to debt factor agency
  • Encourage suppliers to offer extended credit
  • Request extension of overdraft
  • Sell and lease back assets
  • Set targets an avoid cash flow issues
• Benefits of cash flow forecasts

  • Help the business predict when they might have cash flow problems
  • Banks may extend overdrafts or loans due to planning
• Limitations of cash flow forecast

  • Fails to consider that a business can delay payments to increase net cash flows.