Please enable JavaScript.
Coggle requires JavaScript to display documents.
3.7 CASH FLOW (CASH FLOW FORECAST (Forecasting cash outflows (Lease…
3.7 CASH FLOW
CASH FLOW FORECAST
Forecasting cash inflows
Owner's own capital injection
Bank loan payments
Customers' cash purchases
Debtors' payment
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
Benefits
Make plans to provide additional finance by looking at -ve cash flow
Make plans to reduce great -ve cash flows
Acceptance to a new business proposal by investors and bankers
Limitations
mistakes can be made / handled by inexperienced staff
Major inaccuracies in forecast
unexpected cost increase
incorrect assumptions bcs of poor market research
IMPORTANCE OF CASH FLOWS PLANNING
shorter credit periods for small business start-ups compared to a large, well-established firms
banks and lenders expect new business owners to pay at the agreed time - promises made by them are often not believed by banks and lenders
finance is very tight at when just starting
WORKING CAPITAL
Current assets - Current liabilities
Current assets
stocks
debtors
cash
Current liabilities
overdrafts
creditors
DISADVANTAGES
firm will face liquidity problem (have to be paid under short notice)
no working capital to buy additional stocks or extend further credits to customer
CASH AND PROFIT
Cash Inflow
payments in cash received by a business
customers
receiving loan
Cash Outflow
payments in cash made by a business
suppliers
workers
CASH FLOW PROBLEMS
Causes
Lack of planning
Poor credit control
Allowing customers too much credit
Business expand too rapidly
Unexpected events
Strategies to deal
reduce cash outflows
delay payments to suppliers
delay spending on capital equipment
use leasing
cut overhead spending
improve cash inflows
reduce credit terms to customers
increase cash sales
overdraft
short-term loan
sale of assets
sale and leaseback
debt factoring
sourcing additional finance