Cash Flow mManagement
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Transcript of Cash Flow mManagement
Cash Flow Management
A Flipped Lesson Presented by Bernd Meyerfor Business Studies 3 students
Cash Flow Management
• What is cash flow management?
• Cash Flow cycle
• Cash Flow Statementso Purpose
o Format
• Cash Budgeting
• Cash flow vs Profit
• Examples of over extension of finances.
Cash is lifeblood of business
Shortfalls lead to problems
Need to monitor cash flows
Cash Flow Statements
Cash Budget - Forecasting
Cash Flow
Cash Flow Cycle
Cash Flow Cycle
Cash
Buy Inventories
Mark upSale
Receivables
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.
Operations Investing Financin
g Net cash flow
Cash Flow Statement composition
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
Cash Budget for the Year Ended :
Estimated ReceiptsJan Feb Mar
Sales
$ 30,000 $ 35,000 $ 38,000 Rental income
$ 2,000 $ 2,000 $ 2,000 Total Income
$ 32,000 $ 37,000 $ 40,000
Estimated Payments
Cost of Goods Sold
$ 15,000 $ 17,000 $ 18,000 Wages
$ 6,000 $ 6,000 $ 6,000 Lease of equipment
$ 1,200 $ 1,200 $ 1,200 Rent
$ 3,000 $ 3,000 $ 3,000 Advertising/marketing
$ 3,000 $ 1,500 Loan repayment
$ 500 $ 500 $ 500 Admin
$ 1,000 $ 1,000 $ 1,000 Electricity
$ 1,000 Insurance $ 4,500 Telephone
$ 200 $ 200 $ 200 Motor Vehicle Costs
$ 350 $ 350 $ 350 Drawings
$ 2,500 $ 2,500 $ 2,500 Total Expenses
$ 34,250 $ 34,750 $ 35,250 Excess of Income over expenses
-$ 2,250 $ 2,250 $ 4,750 Opening Bank Balance
$ 10,000 $ 7,750 $ 10,000 Closing Bank Balance
$ 7,750 $ 10,000 $ 14,750
ESTIMATED ESTIMATED
Estimated
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
How to deal with cash surpluses
• Invest cash • Purchase assets• Take over another business• Pay back loans
High level of credit sales
Purchase of assets
Payment of loans
Level of drawings by
owners
Cash flow vs profit
A business can make profit but still experience cash flow problems because:
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