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
Cash flow explain as like water coming into a bath. Or like watering plants.
Ask what would happen if you had plants in this classroom which needed to be watered 3 times a week with a total of 1 litre each week.
You have drawn up a watering roster, and all starts well, and the plants thrive.
But then things slip, and the duty person forgets this week, and the 2 girls assigned to come in over the holiday forget to tell you that one is going to New York, and the next is visiting relatives in the second week. All 3 realise their mistake when we return in November, and each tries to water the plants with a litre each.
The plants will have received a litre a week, but sadly they are dead.
Do an exercise with water.
Show

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

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

7. Simple example £ October November December a Opening balance 3,000
3,000
(1,000) b
Finance raised
20,000 c
Cash from sales
7,000
15,000
d=b+c
Cash inflow e
Cash outflow
17,000
11,000
12,000
f=d-c
Net cash flow
(4,000)
g=a+f
Closing balance
2,000

8. Simple example of a new business
October
November
December a
Opening balance
3,000
(1,000) b
Finance raised
20,000 c
Cash from sales
7,000
15,000
d=b+c
Cash inflow e
Cash outflow
17,000
11,000
12,000
f=d-c
Net cash flow
(4,000)
g=a+f
Closing balance
2,000
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

9. Mr. Brown’s Burger Bar £ Jan Feb March April May June Opening balance
Opening balance
New capital
7,500
Cash from sales
1,000
3,000
3,500
4,500
5,500
6,000
Cash inflow
8,500
Cash outflow
8,000
3,250
5,250
4,250
Net cash flow
Closing bank balance

10. Mr Brown’s burger bar - the answers
Jan
Feb
March
April
May
June
Opening balance
500
250
(500)
New capital
7,500
Cash from sales
1,000
3,000
3,500
4,500
5,500
6,000
Cash inflow
8,500
Cash outflow
8,000
3,250
5,250
4,250
Net cash flow
(250)
(750)
1,750
Closing bank balance
2,250