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But what did we learn in Unit 1…read more

Page 3

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Cash flow:
The amounts of money into & out Cash flow cycle A. Holding of
of a business over a period of cash in business
Below is the pattern of inflows £ £
(money coming into business) & Inflows of cash in return for sale of Outflows of cash to buy or hire
outflows (money going out). good and/or service factors of production (land, labour,
capital & enterprise)
B.…read more

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In addition to that what do we have to
know for unit 2
o Causes of cash-flow problems
o Ways of improving cash flow…read more

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Cash flow This is the amount of money flowing in and out of a business at a
given period of time.
Bank overdraft This is an agreement hereby the holder of a current account at a
bank is allowed to withdraw more money than there is in there
account. The agreement specifies the maximum level of the
Short-term loan A short term loan is a sum of money provided to a firm or an
individual for a specific, agreed purpose.…read more

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Cash flows help to spot debt before it may
arise, and also to find where the money
can come from to help in paying debts
CASH CYCLE A business always
needs to ensure that
they have enough
cash to meet daily
Sell to customers on credit Customers (debtors pay up)
Each business will have it's own distinct
cycle and will have their own unexpected
shocks to deal with
Produce goods Buy materials…read more

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Credit sales Increasing Overtrading Producing Over-investment in
sales and thus expenses. too many goods and fixed assets Leaves
running out of cash, NO money to pay bills .
Unforeseen changes
Seasonal These can be internal
demand Low (equipment
sales revenue or breakdown) or external
high costs during (government
part of the year. legislation).…read more

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Getting goods to the market as soon as
Quick payment ­ Get paid in cash, or
call in credit customers within 30 days.
Obtaining maximum
possible credit for Control credit customers ­ Gain bank
purchases (delaying references before supplying credit
bills) Debt Factoring ­ Sell debt to a factor,
Controlling costs they buy the debt for 80% of its value, then
Keeping stocks of chase the debt in full.…read more

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Bank overdraft
Advantages: Disadvantages:
Easy to organise Interest rates are flexible HOWEVER it is difficult to budget accurately.
Flexible The rate of interest charged on an overdraft is higher than a short-term
Often cheaper than a loan> interest is paid on the amount overdrawn and bank loan> Expensive
for when the overdraft is used.…read more

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Other Ways Of Improving Cash Flow
·Improve working capital
Working ·Careful control of the firms main assets & make sure there is enough to pay creditors & other immediate payments
·Agree overdraft limit with the bank
·Set aside contingency fund for unexpected payments
Cash ·Improved decision making
·J.I.T.…read more


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