Cash Flow
- Created by: Greg Noble
- Created on: 17-03-17 09:42
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- Cash flow
- Cash flow forecasts
- The prediction of future cash outflows sharing the estimated cash balance at the end of each month
- Benefits
- Determine whether there is enough cash available to pay salaries or debts on time
- It calculates whether the businesses reserves that can be invested in expansion or new equiptment
- Business can plan for shortfalls that are likely and if surplus funds are available
- Cash and liquidity is essential for the businesses survival
- Limitations
- Based on predictions and not accurate
- Costs may change due to interest/ exchange rates changing
- Information is limited which isn't always useful for decisions
- Unanticipated factors that can't be accounted for
- Only accounts for a portion of a year and not for payments that affect the future
- Completing a cash flow forecast
- Balance at the start is carried forward from the balance at the end of a month
- Includes the inflows and outflows, total income and expenditure
- Net profit: Sales revenue - Total costs
- Gross profit: Sales revenue - Cost of goods sold (usually total variable costs
- Causes of cash flow problems
- Few sales and too much stock or low profits which could mean a lack of available funds
- Over-investment and production doesn't generate enough income
- debtors being allowed too much credit and they don't pay on time when the business needs the money
- seasonal demand that can create cash-flow problems that the business should expect
- Solutions to cash flow problems
- Arrange an overdraft as a short-term solution to borrow money from the bank but at high interest
- Selling assets such as machinery or resources of value
- Extend credit with suppliers so the business won't have to pay as soon
- Arrange a loan that may impact on a future cash flow
- Cut cost for non-essential things
- Cashflow Statement
- Summery based on actual cash flow data recorded
- Inflows
- Sales revenue
- Payments by debtors (owed to the business)
- Loans
- Sale of assets
- Sale of shares
- Sponsorship of a third party (being sponsored)
- Outflows
- Purchase of stock
- Loan payments
- Utility bills
- Payments to creditors (who the business owes)
- Rent and rates
- The business sponsoring another business
- Cash flow forecasts
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