Cash Flow mManagement

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What is cash flow and how do businesses manage cash flow?

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  • Cash Flow mManagement

    1. 1. Cash Flow Management A Flipped Lesson Presented by Bernd Meyer for Business Studies 3 students
    2. 2. Cash Flow Management • • • What is cash flow management? Cash Flow cycle Cash Flow Statements o o • • • Purpose Format Cash Budgeting Cash flow vs Profit Examples of over extension of finances.
    3. 3. Cash Flow
    4. 4. Cash Flow Cycle Cash Receivables Sale Cash Flow Cycle Buy Inventories Mark up
    5. 5. Cash Flow Statements • • • Purpose to provide liquidity about the business. A business is liquid if it has enough cash to meet commitments. A cash flow statement shows the movement of cash receipts (inflows) and cash payments (outflows) over a period of time. • • Similar to cash budgets but shows what has happened Cash flow statements are divided into three categories: cash flows from operating activities, those from investing activities and those from financing activities.
    6. 6. Cash Flow Statement composition Operations Investing Financing Net cash flow
    7. 7. Cash Budgets • • • • Similar to Cash Flow Statements which shows what has happened. Cash Budget is a forecasting tool. Consists of Estimated Receipts and Estimated Payments Cash Budgets are vital for the information they give on the timing of payments and receipts of income to identify: • • Excess money - invest Deficits – arrange shortfall
    8. 8. Cash Budget for the Year Ended : Estimated Receipts Jan Feb Mar Sales $ 30,000 $ 35,000 $ 38,000 $ 2,000 $ 2,000 $ 2,000 $ 32,000 $ 37,000 $ 40,000 $ 15,000 $ 17,000 $ 18,000 $ 6,000 $ 6,000 $ 6,000 $ 1,200 $ 1,200 $ 1,200 $ 3,000 $ 3,000 $ 3,000 $ 3,000 $ 1,500 Rental income Total Income Estimated Payments Cost of Goods Sold Wages Lease of equipment Rent Advertising/marketing Loan repayment $ 500 $ 500 $ 500 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 4,500 $ 200 $ 200 $ 200 $ 350 $ 350 $ 350 $ 2,500 $ 2,500 $ 2,500 $ 34,250 $ 34,750 $ 35,250 -$ 2,250 $ 2,250 $ 4,750 $ 10,000 $ 7,750 $ 10,000 $ 7,750 $ 10,000 $ 14,750 Admin Electricity Insurance Telephone Motor Vehicle Costs Drawings Total Expenses Excess of Income over expenses Opening Bank Balance Closing Bank Balance
    9. 9. ESTIMATED ESTIMATED Estimated
    10. 10. How to avoid cash shortfalls • • • • • • Arrange a bank overdraft. Reduce expenses Increase income (sales) Reduce drawings by owners Defer payment of assets Lease assets instead of purchase assets outright
    11. 11. How to deal with cash surpluses • • • • Invest cash Purchase assets Take over another business Pay back loans
    12. 12. Cash flow vs profit A business can make profit but still experience cash flow problems because: High level of credit sales Payment of loans Purchase of assets Level of drawings by owners
    13. 13. Avoiding Overextension to maximise cash flow • • • • • • Use of leasing Avoid dependence on debt financing. Use forecasting and cash budgeting Take little steps. Don’t invest in too much stock Keep staffing levels trim by: outsourcing use more machinery

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