2. What is cash flow?
The amounts of money flowing into
and out of a business over a period
of time
NB CASH FLOW IS NOT THE
SAME THING AS PROFIT
3. What are cash inflows?
Receipts of cash
Cash flows into a business from:
- sales of goods and services
- payments by debtors (people who OWE the
business money)
- money received from loans from the bank
- interest received from cash in the bank
- sales of assets (things the business owns)
4. What are cash outflows?
Payments of cash
Cash flows out of a business from:
- purchase of raw materials and wages etc
- money paid to creditors (people to whom
the business owes money)
- money used to repay loans to the bank
- payment of rent
- buying assets
- payment of interest on loans
5. Visualising cash flow
The difference between the amount
of money flowing into a business
and the amount flowing out is
important
See what happens when there is a
positive cash flow
See what happens when there is a
negative cash flow
6. Cash flow forecasting
The process of estimating the
expected cash inflows and cash
outflows over a period of time
7. Why forecast cash flow?
To identify likely cash flow problems
- to ensure that bills can be paid
To enable the firm to plan expenditure
- to ensure expenditure takes place
when there is sufficient cash
To allow time to seek additional cash
- to seek overdraft facility from a bank
or a loan to cover major expenditure
To avoid going into liquidation
- businesses that can’t pay their bills
face liquidation
8. Constructing a cash flow
forecast
Key terms:
Opening balance – amount of cash the
business starts with in any month or year
Cash inflow – money coming in
Cash outflow – money going out
Net cash flow – difference between money
coming in and money going out
Closing balance – the opening balance + net
cash inflow
9. Task 1
Complete the cash flow
forecast for Fun for Kids
Ltd on p117 and 118 of your
textbook
10. Causes of cash flow problems
Seasonal
demand
Losses Too many
credit sales
Overtrading
Over-
investment
The
unforeseen
Too high
stock
11. Perils of cash flow forecasts
Changes in the
economy
New
competitors
Changes in
consumer tastes
Poor market
research
Uncertainty
12. Task 2
Using pp113 – 115 of your
textbook create a mind map
of the different ways in
which cash flow can be
improved
Identify the pros and cons
of each method
16. Homework assignment
Question 2:
Identify two other items
that could be included under
the heading ‘cash inflows’
Refer to the textbook definition of
cash inflows and list two cash inflows
other than sales revenue
20. Homework assignment
Question 4:
Reasons include:
No credit terms
No need to hold stock
Credit received on stock
Few seasonal variations
VAT second largest outflow
23. Homework assignment
Question 5:
Aim to balance your answer
Disadvantages
Likely to worsen cash flow in
short term
Increases the risk of bad debt
Increase admin costs
25. Homework assignment
Question 5:
Don’t forget to make
judgements
Definite decrease in cash flow
vs potential increase in profit
Cash flow currently stable
Closing balances not very large
Need for overdraft
Hinweis der Redaktion
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting
To reduce risk business activity is risky – who knows what might happen in the market? good practice to consider a range of scenarios and address them before they impact on the business To set objectives and methods by which they can be achieved without clear objectives a business might drift or ‘satisfice’ To communicate objectives clear objectives, well communicated, may improve motivation and productivity creates a sense of a common purpose To monitor progress performance can be checked against objectives and targets To help raise finance investors and lenders are ‘risk averse’ they need persuading to part with cash! To anticipate the need for additional finance a key feature of cash flow forecasting