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CASH FLOW ANALYSIS (LIMITATIONS OF CASH FLOW FORECASTING…

- - - - cash in
      - payment to suppliers/employees/cash
      - goods produced
      - goods sold
      - services rendered
      - Lag in flow of cash in the cycle can lead to slow down of production/operation
  - - - Cash inflows- usually from sales revenues when cash payment is received
        
        forecasting cash inflows
        
        owners' own capital injection
        
        bank loan payments
        
        customers' cash purchases
        
        debtors' payments
      - cash outflows- payment of bills, usually itemized expenses
        
        forecasting cash outflows
        
        lease payment for premises
        
        annual rent payment
        
        electricity, gas, water and telephone bills
        
        labour cost payments
        
        variable cost payments such as cleaning materials
      - net cash flow- the differences between cash inflow and outflow per period
    - - 1) Get the opening balance
      - 2) Amount of cash at the beginning of the trading period
      - 3) Add cash inflow from sales + other income
      - 4) Add itemized cash outflow of expenses including: stocks, labor, etc
      - 5) Closing balance is the opening balance of the next month
    - - Overtrading
      - Overborrowing
      - Overstocking
      - Poor credit control
      - Seasonal or unforeseen causes
      - lack of planning
      - allowing customers too much credit
      - STRATEGIES FOR DEALING WITH CASH FLOW PROBLEMS
        
        Reducing cash outflows
        
        delay payment to suppliers (creditors)
        
        delay spending on capital equipment
        
        use leasing not outright purchase of capital equipment
        
        cut overhead spending that does not directly affect output, e.g promotion costs
        
        Improving cash inflows
        
        Reduce credit terms to customers
        
        increase cash sales (with no increase in promotion costs
        
        Short-term loan
        
        marketing planning
        
        broaden product portfolio
        
        change of pricing policy
        
        cash payments
        
        Sourcing additional finance
        
        sale of assets
        
        sale and leaseback
        
        Debt factoring
        
        overdraft
        
        government assistance
        
        growth and evolution
        
        OTHER MEASURES
        
        Contingency funds
        
        develop wider customer base
        
        request for partial payment
        
        pay large bills by installments
        
        improve quality
- - - - this is the ultimate goal of a company