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Cash Flow (Causes of cash flow problems (poor credit control, allowing…
Cash Flow
Causes of cash flow problems
poor credit control
allowing customers too much credit (bad debt)
lack of planning
expanding too rapidly
unexpected events (recession)
the relationship between investment, profit and cash flow
researching and developing a new product
entering a new market by setting up offices and sales force there
opening a new quarry or mine
taking over another business
building a new factory/office/shop
Cash flow forecast
forecasting cash outflows
labour cost payments
bills
annual rent payment
variable cost payments
lease payment for premises
structure of cash flow forecasts
section 1 cash inflows
records cash payments made to the business
section 2 cash outflows
records cash payments made by the business
section 3 net monthly cash flow and opening and closing balance
net cash flow & cash balances
benefits of cash flow forecasts
plans to provide additional finance can be made
plans for reducing finance
progress can be made on the business proposal
forecasting cash inflows
bank loan payments
owner's own capital injection
customers' cash purchases
debtors' payments
limitations of cash flow forecasts
incorrect assumptions in estimating sales based on poor market research
unexpected cost increase can lead to major inaccuracies in forecasts
mistakes made in preparing revenue and cost forecasts
drawn up by inexperienced entrepreneurs or staff
Strategies for dealing with cash flow problems
improving cash inflows
short-term loan
sale of assets
overdraft
sale and leaseback
increase cash sales (with no increase in promotion costs)
debt factoring
reduce credit terms to customers
reducing cash outflows
delay payments to suppliers (creditors)
delay spending on capital equipment
use leasing instead of outright purchase of capital equipment
cut overhead spending that does not directly affect the output