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 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