- Created by: parisallen02
- Created on: 09-08-17 16:23
Cash is vital to a business’s success and includes notes, coins, and money in the bank.
Cash flow is: The flow of money coming into and going out of a business
Cash Inflows: the cash coming into a business -
Cash from the individual.
Loan from the bank.
Cash payments from sales
Cash Outflows: the cash going out of a business -
Wages & training
Equipment & stock
Telephone, gas, electric & other bills
Intrest on loans
Maintenance & Repairs
Net Cash Flow
Net cash flow is the money left over when a business takes its outflows from its inflows.
In other words, NET CASH FLOW IS:
the receipts of a business minus its payments
Example: If Nestle has £30,000 per month coming in and pay out £10,000 in costs, their net cash flow is £20,000.
Payments from customer
Interest on bank accounts, savings & investments
Franchise fees, royalty payments etc
Merchandise (The gifts you can buy in store and places like Debenhams).
Receipt of bank loans/overdrafts
Purchase of stock, raw materials or tools.
Wages, rents, and daily operating expenses.
Purchase of fixed assets - PCs, machinery, office furniture, etc.
Income tax, corporation tax, VAT and other taxes.
Reduced overdraft facilities.
Increasing Cash Inflows
Increasing sales revenue
Improving C.F from customers
Long term solution e.g. loans
Increasing Sales Revenue
Sales revenue = Selling price x quantity sold
Main ways to boost sales revenue:
1. Improved marketing: Using alternative or additional forms of advertising or product trials
2. Better products: Introducing new or differentiated products to the marketplace
Reducing stocks of finished products (possibly having a sale to shift stock surpluses).
Improving Cash Flow
Reduce trade credit – pay for stock the following month.
Chase up late payments
Employ a factor
(A Factor is a financial company, often a bank that will advance the money owed to a business by its customers)
What are longer term solutions there to improving cash flow?
Solutions: Bank loan, issue shares (PLC’s) or sale of assets.
Changing cash outflows
Improve & reduce cash outflows
Lease rather than buy
Reduce your orders for materials & stock
Delay paying invoices
1.Financial management is the deliberate action of changing monetary variables to achieve financial objectives, such as improved…