Cash flow

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  • 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


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