Cash flow
- Created by: megangore
- Created on: 03-04-16 15:49
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- Cash flow
- Advantages
- Helps a business plan ahead
- Alerts banks to potential problems in the future
- Influences a businesses decisions about the future
- Disadvantages
- It is only a forecast
- The business has to make sure figures are accurate
- Lots of research is required to produce a cash flow forecast
- Problems
- Excessive borrowing= many companies take out substantial loans and mortgages to meet high cost expenses such as equipment, marketing and location
- Excessive trade credit= many companies offer trade credit terms to attract customers, however this can mean that cash inflows may not meet outflow
- Excessive stock= buying in bulk is cheaper, however too much stock represents a large outflow of cash that is not generating income
- Overtrading= overtrading occurs when a business tries to expand too quickly. this can cause a substantial outflow before generating a compensating inflow from sales
- External factors= competitors resulting in loss of sales, changes in interest rates, innovation, changes in legislation e.g. pollution laws
- Poor planning= many businesses do not forecast cash flow. They assume that revenue will increase or they don't recognise seasonal or cyclical factors
- Improvements
- Arrange an overdraft
- Increase sales
- Buying and holding less stock
- Improve credit control
- Sell fixed assets
- Extend trade credit from suppliers
- Advantages
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