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).