1. Cash flow Business Cash inflow £££££££ Cash Outflow

2. Lesson series on Cash flow

3. What is cash? Cash flow shows the flow of money into and out of a business over a given time period

4. Why is cash flow important Without adequate cash even a company with high sales might not survive If a business cannot pay its bills – Suppliers would stop supplying it – Workers would stop working and look for another job Particularly important for new businesses – Most businesses that fail in their first year do so because of cash flow problems Cash flow is not the same as profits. Profits are revenues minus costs

5. Quiz Which of these are cash inflows or outflows? Purchase of raw materials Cash sales Wages Bank loan Rent Purchase of equipment with credit card Advertising Cash inflow Cash outflow when the bill is paid Cash outflow Cash outflow when the bill is paid Cash outflow Purchase of capital equipmentCash outflow

6. Net Cash Flow and Bank Balance Define Net Cash Flow What is Opening Bank Balance What is Closing Bank Balance What’s the meaning of brackets with numbers eg (500) Cash inflow minus cash outflow Bank balance at the beginning of the period = balance at the end of the last period Opening Bank Balance plus Net Cash Flow A minus number, so (500) is -500 Used in finance

7. Simple example of a new business Starting in October, the business has no money. This is shown in row a as an opening balance of 0. This means the cash position at the beginning of the month It raises £20,000 in the first month (row b) Cash from sales is 0 this month because it is new (row c) This means total cash inflow (row d) is £20,000 - finance plus cash from sales Cash outflow is shown in row e at £17,000. It is large reflecting start-up costs Net cash flow (row f) is cash inflow minus cash outflow The closing balance (row g) tells us how much cash the business has at the end of the month, which is the opening balance plus net cash flows in the month. The opening balance for November is simply the closing balance for October £OctoberNovemberDecember aOpening balance03,000(1,000) bFinance raised20,000 cCash from sales07,00015,000 d=b+cCash inflow20,0007,00015,000 eCash outflow17,00011,00012,000 f=d-cNet cash flow3,000(4,000)3,000 g=a+fClosing balance3,000(1,000)2,000

8. Simple example £OctoberNovemberDecember aOpening balance03,000(1,000) bFinance raised20,000 cCash from sales07,00015,000 d=b+cCash inflow20,0007,00015,000 eCash outflow17,00011,00012,000 f=d-cNet cash flow3,000(4,000)3,000 g=a+fClosing balance3,000(1,000)2,000

9. Mr Brown’s burger bar - the answers £JanFebMarchAprilMayJune ££££££ Opening balance0500250 (500)500 New capital7,500 Cash from sales 1,000 3,0003,5004,5005,5006,000 Cash inflow8,5003,0003,5004,5005,5006,000 Cash outflow 8,000 3,2503,5005,2504,5004,250 Net cash flow500(250)0(750)1,0001,750 Closing bank balance500250 (500)5002,250