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This lesson will be about... Cash Flow (part of financial planning in business plans)

This lesson will be about... Cash Flow (part of financial planning in business plans). What is cash flow? What data would we find on here? Who would use one?. NO IDEA I NEED HELP NEVER HEARD OF IT. OK I CAN DO THIS WITH SUPPORT SOME GUIDANCE NEEDED NEARLY AT MY TARGET. GOT IT!

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This lesson will be about... Cash Flow (part of financial planning in business plans)

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  1. This lesson will be about...Cash Flow(part of financial planning in business plans) What is cash flow? What data would we find on here? Who would use one?

  2. NO IDEA I NEED HELP NEVER HEARD OF IT OK I CAN DO THIS WITH SUPPORT SOME GUIDANCE NEEDED NEARLY AT MY TARGET GOT IT! VERY CONFIDENTWILL HIT MY TARGET GRADE EXCEED TARGET LEARNING OBJECTIVES Investigate ‘cash flow’ and its use within a business

  3. How do we work out the following(stick these in your books) TOTAL COST= ...................................................... TOTAL REVENUE / SALES REVENUE=................... PROFIT / LOSS= ....................................................

  4. How do we work out the following(stick these in your books) TOTAL COST= ...fixed costs + variable costs... TOTAL REVENUE / SALES REVENUE=...sales x price. PROFIT / LOSS= .......total revenue – total costs......

  5. What is ‘cashflow’? • The flows of money into and out of the business • Money flows in through revenue from sales of service or product • Money flows out when wages and expenses are paid or stocks are purchased.

  6. The principle of cashflow • More money IN than OUT = cashflow positive. BUT high surplus of cash should be avoided • More money OUT than IN = cashflow negative. • Can mean shortage of cash to pay bills AIMis to have a positive cashflow or at least a balance

  7. Inflows Inflows (Receipts)= money received from • Customers payments (sales revenue) • Local and national government grants • Sale of property or equipment • Loans • Own savings

  8. Outflows Outflows(payments)= money spent by the business on • Wages and salaries for staff • Raw materials or stock • Gas, electricity, water and telephone • Rent and business rates • Interest on loans • VAT • Equipment purchases

  9. Key Terms Net Cash Flow = Receipts – Payments Insolvency – When a business can no longer pay its debts Opening Balance – the amount of money in the business at the start of the month Closing balance – the amount of money in a business at the end of a month Cumulative cash flow – the sum of cash that flows in to a business over time

  10. Cashflow forecasts Cash flow forecasts are prepared when: • A new product or service is planned • New resources (e.g. new machinery) arebeing bought • A major sales campaign is planned • There will be a large increase in existing activities, e.g. making or selling many more products IT IS A NECESSARY PART OF A BUSINESS PLAN

  11. Basic Cash Flow Forecast Cash coming in Cash going out Difference between money received and money spent Balance of account at the start of the time period Net Cash Flow plus the opening balance = Closing Balance

  12. 5200 600 1600 1600 6800

  13. Causes of Cash flow problems • Seasonal Trade • Overtrading • Allowing too much trade credit • Poor Credit Control • Unexpected costs NOTE: Use your knowledge of ‘sources of finance’

  14. Computers and cash flow Spreadsheet packages are ideal for cashflow forecasts because: • Once the data and formulae have been entered, the calculations can be done quickly and accurately • ‘What if’ calculations can be carried out swiftly • Alterations to data can be made quickly and recalculations done automatically

  15. Computers and cash flow Potential problems with using a computer are: • Incorrect data or formulae will lead to wrong conclusions • Spreadsheets take time to set up • Computer data can be lost or corrupted

  16. How did we do? Notes up-to-date? Areas of concern! Ask the teacher

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