Cash flow
the movement of money in and out of the business
- Cash flows into the business as receipts, eg from cash received from selling products or from loans.
- Cash flows out of the business as payments, eg to pay wages, supplies and interest on loans.
- Net cash flow is the difference between money in and money out.
insolvency
when a business does not have enough money to pay off suppliers or workers. the business must either raise new funds or close
A BUSINESS USES A CASH FLOW FORECAST TO:
- Identify potential shortfalls in cash balances – for example, if the forecast shows a negative cash balance then the business needs to ensure it has a sufficient bank overdraft facility
- See whether the trading performance of the business (revenues, costs and profits) turns into cash.
- Analyse whether the business is achieving the financial objectives set out in the business plan (which will almost certainly include some kind of cash flow budget)
Things that effect cashflow
Costs
Stock levels
Credit
Sales
Stock levels
Credit
Sales