Transcript IGCSE Business Studies

IGCSE Business Studies
Cash Flow
What is meant by cash flow?
• 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
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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
• There are many uses of cash flow
forecasts, they 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
• Net cash flow: is the difference, each, month
between the inflows and outflows
• 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.
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