How to improve cash flow

Specification detail• How to analyse the difference between

increasing cash inflows and reducing cash outflows

• Key aspects of financial management such as how to establish more favourable credit terms with customers and suppliers and the practice of destocking

This lessonLesson Aims:• All students will understand that a cash flow forecast

shows the money coming in and money going out of a business

• Most students will be able to complete a cash flow forecast

• Some students will understand why businesses produce cash flow forecasts

BBC Profit and cash flow: here

To know the difference between increasing cash inflows and reducing cash outflows

CASH IN

CASH OUT

A business needs enough cash to pay bills

CASH IN

CASH OUT

A business needs enough cash to pay bills

cash flows are affected by stock levels and credit terms

● Managing your business finance : Here

●

What did the owner of Tulip Tree do to improve stock levels and credit terms?

Helen and David’s hotelpg304

• How could Helen and David reduce their outgoings?• Decrease cash outflows:

• Increase cash inflows:

• Increase overdraft:

• Negotiate credit terms:

• Destocking:

• In your exam be sure to separate inflows from outflows.• You need to decide: Will a cash flow boost come from bringing more

cash in or cutting the amount flowing out?

The firm’s control of cash flow• Some cash flow issues can be managed by the firm, others

are out of their control. Complete the table by putting a cross (x) or tick (√) next to the following opportunities.

Boosting cash in X / √ Cutting cash out X / √

Getting customers to pay more quickly

Cutting orders on new stock

Getting shareholders to invest more Stopping investments in expansion

Running a 25% off everything sale Stopping hiring temporary or seasonal staff

Getting a bank to provide a load Delaying payment to your suppliers (within reason)

Cash flow exampleCashflows are usually produced for 12 months

January February March

Cash In INFLOW

£10,000 £4,000 £12,000

Cash Out (OUTFLOW)

£2,000 £6,000 £10,000

Net Cashflow

Opening Balance

NIL

Closing Balance

Why produce a cashflow?

Why produce a cashflow?

Summary questions• What does a cash flow forecast show?

• Why does a company produce a cash flow forecast?

• Who is interested in a company’s cash flow?

• REVISION: here (it is quite difficult).