CASH FLOWCASH FLOWBusiness StudiesBusiness Studies

What is cash flow?

• Cash is notes and coins available for immediate payments.

• Cash flow is the flow of cash in and out of a business, over a period of time.

• Cash inflows are the sum of money received by a business over a period of time while cash outflows is the exact opposite.

Cash inflow

How can cash flow into a business?• By the sale of goods for cash• Through payments made by debtors• By borrowing money from external sources

( e.g. Loans)• Through the sale of assets if the business• From investors

Cash Outflow

How can cash flow out of a business?• By purchasing goods or materials for cash• By the payment of wages/ salaries to the

employees• By purchasing fixed assets• By repaying loans• By paying creditors of the business

Cash Flow Forecasts

A cash flow forecast is an estimate of future cash inflows and outflows of a business, usually on a month by month basis. This will then show the expected cash balance at the end of each month.

Uses of cash flow forecast

The uses of cash flow forecasts are:• Starting up a business• Keeping the bank manager informed• Running an existing business• Managing cash flow

Some common terms

• Opening bank balance: is the amount of cash held by the business at the start of the month

• Closing cash balance: is the amount of cash held by business at the end of the month, this becomes the next month opening bank balance.

• Net cash flow: is the difference, each, month between the inflows and outflows.

What cash flow is not!

• Cash and profit are two very different things.

• Profit is the surplus after total costs have been subtracted from sales revenue and cash flow is not.

How to solve cash flow problems

• Arrange with your bank to borrow money over the time when you have negative cash flow

• Reduce or delay some of your planned expenses

• Increase your forecasted cash income in some way( e.g. a part time job.)

• Delay paying for some of your expenses until cash is available