IGCSE Business Studies

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IGCSE Business Studies

• Cash Flow

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What is meant by cash flow?

• Cash flow is the flow of cash in and out of a
  business, over a period of time.
• Cash inflows are the sum of money received by a
  business over a period of time while cash
  outflows is the exact opposite.

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Cash inflow

• How can cash flow into a business?
• By the sale of goods for cash
• Through payments made by debtors
• By borrowing money from external sources ( e.g.
  Loans)
• Through the sale of assets if the business
• From investors

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Cash Outflow

• How can cash flow out of a business?
• By purchasing goods or materials for cash
• By the payment of wages/ salaries to the
  employees
• By purchasing fixed assets
• By repaying loans
• By paying creditors of the business

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Cash Flow Forecasts

• A cash flow forecast is an estimate of future
  cash inflows and outflows of a business, usually
  on a month by month basis. This will then show
  the expected cash balance at the end of each
  month.

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Uses of cash flow forecast

• There are many uses of cash flow forecasts, they
  are
• Starting up a business
• Keeping the bank manager informed
• Running an existing business
• Managing cash flow

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Some common terms

• Opening bank balance is the amount of cash held
  by the business at the start of the month
• Net cash flow is the difference, each, month
  between the inflows and outflows
• Closing cash balance is the amount of cash held
  by business at the end of the month, this becomes
  the next month opening bank balance.

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What cash flow is not!

• Cash and profit are two very different things.
• Profit is the surplus after total costs have been
  subtracted from sales revenue and cash flow is
  not.

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How to solve cash flow problems

• Arrange with your bank to borrow money over the
  time when you have negative cash flow
• Reduce or delay some of your planned expenses
• Increase your forecasted cash income in some way(
  e.g. a part time job.)
• Delay paying for some of your expenses until cash
  is available