Cash and Cash flow

• What does cash refer to in a business context?

  Cash refers to both physical money and money available in the business' bank accounts.
• Why is the management of cash important for a business?

  Cash management is important because it allows a business to pay its bills.
• What are the main cash payments a business makes?

  • Payments to suppliers
  • Payments to employees
  • Overheads (e.g., rent, electricity, telephone bills)
• How can a few large customers failing to pay on time affect a business?

  It can badly affect the business' cash flow position, leading to financial difficulties.
• What is cash flow?

  Cash flow refers to the movement of cash in and out of a business.
• What can happen if a business does not have the cash it was expecting to have?

  The business can face financial difficulties and may even fail.
• What are credit terms in a business context?

  Credit terms allow a business to pay for raw materials or stock at a later date.
• If a business allows its customers to pay within 30 days, what should it consider doing with its suppliers?


  It should negotiate longer credit terms with its suppliers.
• What is an example of an overhead payment a business might make?

  Rent is an example of an overhead payment.
• What can cause business failure related to cash management?

  Failing to manage cash and cash flow can cause business failure.
• How can a business have negative cash flow despite having many customers?

  A business can have negative cash flow if its expenses exceed its income.
• What are the two instances when a business can suffer cash flow problems?

  At start-up and during rapid growth.
• Why does a business experience cash flow problems at start-up?

  Because large amounts of money need to be invested to get the business started.
• What is the primary difference between cash and profit in a business?

  Not all cash paid into a business is profit.
• Why must a business pay its costs from the money that comes into it?

  To determine the actual profit after expenses are deducted.
• What types of expenses might a business incur at start-up?

  Equipment, initial stock, rent, insurance, hiring, training, and staff costs.
• What is the formula to calculate profit?

  Profit = Revenue - Costs
• What causes cash flow problems during rapid growth?

  The business needs to grow quickly but cannot keep up with the cash being paid out.
• How is profit typically calculated?

  Profit is usually calculated on an annual basis.
• What might a business need to do during rapid growth?

  Find larger premises and invest in making them ready to move into.
• How can calculating profit monthly benefit a business?

  It can show that the business is solvent and indicate whether it will achieve profit targets.
• What is cash flow?

  The movement of money in and out of a business over a period of time.
• What does cash flow forecasting involve?


  Predicting the future flow of cash in and out of a business’ bank accounts.
• What is the typical duration for a cash flow forecast?

  A 12-month period.
• Why is forecasting cash inflows and outflows important?


  It is crucial for new businesses, fast-growing businesses, and businesses with unpredictable sales patterns.
• What types of businesses benefit from cash flow forecasting?

  • New businesses
  • Fast-growing businesses
  • Businesses with unpredictable sales patterns (e.g., seasonal businesses like an ice cream van)
• What does it mean if a business has customers who are not paying what they owe?

  The business may be unable to pay its own bills and may become insolvent.
• How does a cash flow forecast assist a business?

  It allows a business to plan for the future and make important decisions.
• What important decisions can a cash flow forecast assist a business in making?


  • Employing more staff
  • Opening a new branch
  • Investing in a new business
  • Rewarding the owners for their success
• How can cash flow forecasting help identify risks?

  It helps a business to identify the risks of negative cash flow.
• What are the implications of calculating profit on a monthly basis for a business?

  • Shows the business is solvent
  • Indicates potential to achieve profit targets
• Why can creating a cash flow forecast for a new business be difficult?

  Because the business will have no previous figures to help estimate future cash inflows and outflows.
• What must an entrepreneur do when creating a cash flow forecast for a new business?

  Make some guesses about future cash inflows and outflows.
• What should an entrepreneur do after making a cash flow forecast?

  Monitor the business’ cash flow carefully to see if their estimates were realistic.
• What do businesses need to reduce the risk of failure and insolvency?

  Positive cash flow.
• How can an established business use its cash flow forecast?

  By comparing its actual cash flow with its cash flow forecast to monitor whether it is achieving its targets.
• What are cash inflows?

  All of the money coming into the business.
• How can cash inflows be categorized?

  Into different categories, such as sales, rent received, and loans.
• What are cash outflows?

  All of the money moving out of the business to pay for its costs.
• What are some examples of cash outflows?

  Payments to suppliers, employees, and overheads.