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Chapter 23 - Mind Map (1 of 2) - Coggle Diagram
Chapter 23 - Mind Map (1 of 2)
why cash is important for the business
no cash?
can't pay workers
production of goods n services will stop
may be forced into 'liquidation'
cash flow
inflow
investors
borrow money from external sources
sales
debt payments
sale of assets
outflow
purchase goods/materials
pay wages/salary/other expense
purchase NCA
repay loans
pay creditors
cash flow cycle
cash needed to pay for
materials, wages, rent, etc.
goods produced
goods sold
cash payment received for goods sold
not enough cash in stage 1? not enough materials and other requirements
force customers to pay cash in stage 4? lose customers bcs no trade credit
insufficient funds to pay bills? liquidity crisis
cash flow NOT profit
profitable business run out of cash? insolvency
how?
too long credit period for customers
purchase too many NCA at once
expand too quickly and keep a high inventory level
importance of cash flow forecast
cash flow forecast can help know
how much cash available to pay bills
how much cash bank might need to lend to the business
whether business is holding too much cash which can be used
uses of cash flow forecasts
start business
run business
keep bank manager informed
manage cash flow