| Why would Cash be Important for a Business? | -It simply is like Blood to a Human
-If a Business has no Cash, it will Fail
-Businesses need to Manage Cash Appropriately, unless it has Unlimited Finance which is Unrealistic
-Cash is needed to Pay FC, Suppliers and Employees |
| What is the Difference between Profits and Cash? | -PROFITS are just the Main Source for Funds, in a Business
-Revenues will become CASH INFLOWS, and Costs will just become CASH OUTFLOWS
-What this means is that Profit is changed when a Sale has just been Made, but Cash is Changed when it has Received. So a Business with Credit will be making a Profit, but having no Cash
-Profit can only be affected by Running Costs, but Cash is affected by Start Up, Running and Expansion Costs. If a Business buys an Asset, then only Cash is Affected |
| What will happen to Cash and Profit if:
1. Customer buys Good for $10 on 20 Days Credit
2. Advertising Campaign costing around $15,000 from the Agency
3. New Machines bought for $30,000
4. Depreciation [Value of Asset Falls] charge of $100,000 to just Visualise the Use of the Fixed Asset | 1. Profit: Those Sales will be seen Immediacy; Cash INFLOW of $10 will be seen when the Customer has Paid
2. Profit: Those Expenses will be seen Immediately in the Cost Section; Cash OUTFLOW when its time to Pay
3. Profit: Nothing Happens, the $30,000 goes into the Value of the Fixed Assets; Cash OUTFLOW will be present as your Buying the Machine
4. Profit: Will seen the Depreciation of $100,000 as a Cost; Cash will remain Unchanged as its not LEAVING or ENTERING |
| What exactly is Cash flow? | -This is simply the Movement of Cash that either flows IN the Business - Cash Inflow - or flows OUT the Business - Cash Outflow |
| What exactly is Net cash flow? | -Simply the Difference between Cash Inflows and Cash Outflows over a Period of Time |
| Name some Examples of Cash INFLOW? | -Cash Sales
-Receipts from Traders
-Selling Spare Assets
-Owners Capital Investment
-Receipt of Bank Loan
-Government Grants |
| Name some Examples of Cash OUTFLOW? | -Payment to Wages, Overheads and Salaries
-Payment to Suppliers etc...
-Purchasing Equipment
-Interest on the Bank Loan
-Dividends
-Repayment of Loans
-Income Tax, VAT and Corporation Tax |
| What is a Cash Flow Forecast? | -This simply is just a Table that shows PREDICTED:
-Opening Balance [What you start with]
-Cash INFLOWS [Injections of Money]
-Cash OUTFLOWS [Costs]
-Net Cash Flows [Overall Direction of Cash]
-Closing Balance [What you End with] |
| What is the Difference between a Deficit and a Surplus? | -If the Closing Balance is Negative, its a Deficit
-If the Closing Balance is Positive, its a Surplus |
| What are the Disadvantages with Cash Flow Forecasts? | -Sales can be Lower than Expected, and this can be because your Market Research had Issues, or your just too Over-Optimistic
-Customers may not Pay on Time; meaning Cash won't be Received then
-Cost of Production may be Higher; Cash Outflows is Higher. This can be because the Equipment is too High, or its too Inefficient
-Some Costs may not even be Listed, which may be very Detrimental |
| How can a Overdraft be used to Solve a Cash Flow Problem? Is there any Issues with doing so? | A: Very Flexible form of Finance, and is Immediate
A: Interest is only paid when the Overdraft has been Used
D: And said Interest may be High
D: Bank can just Withdraw at any given Moment
D: Starts up may find it Hard to get a Overdraft |
| How can Re-scheduling be used to Solve a Cash Flow Problem? Is there any Issues with doing so? | A: Customers that pay Quicker will mean the Cash Inflows will be Quicker as well - you have more Cash Present
A: Getting a Longer Trade Credit with your Supplier means you have Longer to Pay your Costs with them - More Time.
D: Customers may just Switch because they don't Want to Pay Earlier
D: Start-ups may find it Hard to get a Short Trade Credit with their Supplier
D: Stock may not even be Sold, but still has to Pay for it |
| How can Reducing Cash Outflows be used to Solve a Cash Flow Problem? Is there any Issues with doing so? | A: Reviewing the Business's Cost scan find more Efficient Options that will reduce Cash Outflows.
D: Getting a Better Supplier may be very Time Consuming
D: Cheaper Stock may have its Quality Reduced, which may Tarnish the Business's Reputation
D: Cutting Wages will obviously Interfere with the Staff's Needs [Stakeholders - Don't need to do that ANYMORE!] and lower Motivation |
| How can Increasing Cash Inflows be used to Solve a Cash Flow Problem? Is there any Issues with doing so? | A: More Revenue can be made if New Methods Found
A: Changing the Price may change the Demand and Revenue to your Favour
A: More Promotion can Increase Awareness and Demand
D: Again, new Methods may just take a Long Time
D: More Promotional Activities will need to make sure its Costs are Ensured - else it'll Worsen the Business |
| How can Finding new Sources of Finance be used to Solve a Cash Flow Problem? Is there any Issues with doing so? | A: Selling Shares can be used to gain a Permanent Source of Revenue
A: Bank Loans are obviously Huge Injections of Cash
A: Sale of Assets will also provide More Cash, that doesn't even need to be Paid Back!
D: Selling Shares may Interfere with the Control over the Business
D: Bank Loans has Interest attached to it
D: Selling Assets will almost Never give you a Profit against how much it was Purchased for Originally |
| Why would a Cash Flow Forecast be Important for a Business? | -Can see when the Business will fall Short of Cash
-Makes sure that the Business can Pay its Costs
-Can see Problems with Customer Payments
-Very Important for Financial Planning
-External Stakeholders may want to See a Forecast [Business Plan] |
