Calculating cash flow (Edexcel GCSE Business): Flashcards
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Cash flow
Cash flow
Movement of money in and out of a business on a daily basis
Cash flow forecast
Cash flow forecast
Predicts money movement through business over time
Main purpose of cash flow forecasting
Main purpose of cash flow forecasting
Identify potential cash shortages before critical problems
Inflows (receipts)
Inflows (receipts)
Money coming in (sales, loans, customer payments, investment)
Outflows (payments)
Outflows (payments)
Money leaving (wages, rent, materials, equipment, advertising)
Net cash flow formula
Net cash flow formula
Total receipts - Total payments
Opening balance
Opening balance
Amount of money business has at start of month
Closing balance
Closing balance
Amount of money business has at end of month
Closing balance formula
Closing balance formula
Opening balance + Net cash flow
Opening balance relation to previous month
Opening balance relation to previous month
Equals previous month's closing balance
Key insight from cash flow forecasts
Key insight from cash flow forecasts
Identify months where business might run short of cash
Why profitable businesses can fail
Why profitable businesses can fail
Run out of cash to pay immediate expenses
Actions when negative closing balance forecast
Actions when negative closing balance forecast
Increase receipts, delay payments, or arrange funding