1. Cash Flow

2. Lesson Objectives By the end of the lesson you should be able to:  Explain the advantages and disadvantages of cash flow forecasts.  Identify causes and solutions of cash flow problems.  Explain the difference between cash and profit.

3. Example cash flow forecast. JanuaryFebruary Cash in: Cash out: Wages Stock Building maintenance Total Outflow Net Cash Flow Opening Balance Closing Balance 12 3 2 5 10 2 4 6 Add up all the cash going out of the business Cash coming into the business minus the cash going out. The balance taken from the last months closing balance. Net cash flow plus opening balance.

4. Cash Flow Forecasting. Advantages:  Helps businesses plan.  Sets targets.  Supports fund applications.  Improves efficiency. Problems:  Changes in consumer taste/trends/competition  Inaccurate market research  Changes in minimum wages  Changes in level of spending in the economy

5. Causes of Cash Flow Problems: poor stock management. Unanticipated costs e.g. replacing equipment. Raw Material Price Increase. Increase in payments on debts.

6. Causes of Cash Flow Problems: Seasonal demand. Overtrading. Problems with debtors paying up. credit sales.

7. Solutions to Cash Flow Problems: Debt factoring. ____________________________________ Sale and leaseback. ____________________________________ Improved stock management. ____________________________________

8. Solutions to Cash Flow Problems: Better debt/credit management. _________________________________ Set up a contingency fund. _________________________________ Review product portfolio if seasonal. _________________________________ Timing your spending carefully. _________________________________

9. Ensure you draw up forecasts and act on a potential cash flow crisis do not spend until you have the money [not always practical]

10. Why are small firms more likely to suffer cash flow problems? Smaller market to rely on May only have one main customer Can not demand credit terms Do not have access to lots of cash inflows May have to offer credit to gain the edge over competition

11. The difference between cash and profit Cash flow  represents money from several sources  is affected by the timing of payments into and out of the firm  is critical for the firm’s survival Profit  is the money left over from sales revenue once costs have been subtracted  is calculated before the money is received  is not critical to the firm’s survival