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Chapter 23 - Mind Map (2 of 2) - Coggle Diagram
Chapter 23 - Mind Map (2 of 2)
starting up a business
owner needs to know how much cash is needed
1st few months --> expensive
many new businesses fail bcs owner doesnt know how much cash is needed --> cash flow forecast can help
keeping the bank manager informed
bank managers need firm's cash flow forecast b4 lending
rare banks lend to business without cash flow forecast
managing an existing business
borrowing money needs to be planned
if business exceeds overdraft limit w/o informing the bank manager, bank could force business to pay immediately -> business can close
managing cash flow
too much cash held? money can be used for other profitable things
pay off loans, pay creditors, etc. --> actively managing the cash flow of a business
how short term cash flow problem might be overcomed
increase bank loans
bank loans = more money
limitations
interest
a cash outflow --> repay loans
delay payments
suppliers may refuse to supply again
cash outflow decrease in short term
ask debtors to pay quickly/only cash sales
customers may go to competitors
cash inflow increase --> short term
delay/cancel purchases of capital equipment
cash outflow decrease
long term efficiency could decrease
in the longer term
attract new investors
cut costs and increase efficiencu
develop new products
concept and importance of working capital
working capital --> amount of capital readily avail. for the bus.
working capital may be held in different forms
value of firm's debtors
value of inventories
cash to pay day-to-day costs and buy inventories
working capital = current assets - current liabilities