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