Cashflow recap What are the main inflows for a business? What are the main outflows? What term describes inflow – outflow? Sales revenue (number of sales x selling price) Debtors – those that owe the business money Capital – eg from a bank loan Sale of assets Issue shares Raw materials (variable costs) Overheads / expenses (fixed costs – rent, electric etc) Loan repayments Wages Paying other creditors Net cashflow

Cash flow forecasting Enables a business to plan for the future Allows business to consider possible inflows and outflows and arrange strategies to deal with any surplus or deficit (negative cash flow) Can be used to show bank manager when arranging a loan or overdraft

One way of improving cashflow is to increase sales revenue Sales revenue = selling price x quantity Increase revenue: Increase selling price – higher profit margin Reduce selling price to increase quantity sold (lower profit margin) Improve marketing / advertising Produce better products / bigger range

Other ideas include: DE-STOCKING Having a one-off sale - selling off stocks of products at a reduced price Use a factor company - A financial company that will advance the company the amount of debt owed immediately, but will charge usually 5% of the total debt. Chase up debtors yourself

Other long term solutions A bank loan - A large one-off inflow. However, the loan has to be repaid with interest. This would incur an increase in outflow each month Issue new shares - investors pay cash for shares but they will expect a dividend in return and you are losing control of part of the business. (Remember only limited companies can issue shares). Asset sale – selling off any assets that are no longer used. Cash inflows to the business.

Controlling stocks Order fewer materials, however, may not have enough stock when needed. Or change or cheaper supplier Use materials and stock more efficiently – reducing waste Introduce a JIT system

Delay paying invoices The longer the business can delay paying the longer the delay in outflows improving their cash flow. But can be risky as the supplier may refuse to sell the company in products until the invoice is paid. Could loose out on any discounts for early payment.

Lease rather than buy Leasing (a bit like renting) equipment such as computers means smaller regular payments rather than one large payment. However, the business would never own the asset.