Y8 Business Studies - C7 Cash Flow Planning

What is cash flow?

• The flow of money in and out of a business

• The flow of electricity in a circuit

• The flow of water in a river

• The flow of air in a room

What are examples of cash inflows?

• Repaying loans

• Payment of wages in cash

• Sale of goods for cash

• Purchasing fixed assets

Who is a creditor?

• Someone who lends you money and you owe money to them

• Someone who borrows money from you

• Someone who invests in your business

• Someone who buys goods from your business

What are examples of cash outflows?

• Purchasing goods by cash

• Payment from debtors

• Sale of unwanted assets

• Investment from investors

What is the formula for cash flow?

• Cash flow = Cash inflow * Cash outflow

• Cash flow = Cash inflow + Cash outflow

• Cash flow = Cash inflow / Cash outflow

• Cash flow = Cash inflow - Cash outflow

What is insolvency?

• When a business is expanding rapidly

• When a business has high profits

• When a business has excess cash flow

• When a profitable business runs out of cash and cannot pay debts

What does a cash flow forecast help a manager determine?

• How much cash is available for paying bills, loans, and other fixed assets

• How many employees to hire

• How to increase profits

• How to reduce expenses

Why is it important to keep the bank manager informed about cash flow?

• To expand the business

• To inform about the firm's repayment ability

• To increase cash inflow

• To get discounts on purchases

What should a business do if it has too much cash?

• Distribute the cash to employees

• Invest the cash in risky ventures

• Put the cash to some good use

• Keep the cash in a safe

How can cash flow problems be solved?

• Increase planned expenses

• Arrange for future loans with the bank when anticipating negative cash flow

• Decrease forecasted cash inflow

• Ignore the cash flow issues