Cash Flow

Cash Flow

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

Advertising

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.

Costa Coffee

Cash inflows

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

Cash outflows

Purchase of stock, raw materials or tools. 

Wages, rents, and daily operating expenses. 

Purchase of fixed assets - PCs, machinery, office furniture, etc. 

Loan repayments. 

Dividend payments.

Income tax, corporation tax, VAT and other taxes.

Reduced overdraft facilities.

Increasing Cash Inflows

Increasing sales revenue 

De-stocking

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

De-Stocking

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…