Explore what is meant by the term Cash flow Discuss the role and importance of cash in a business Recognise the difference between a cash flow forecast and a cash flow statement Appreciate how careful planning can minimise risk ID: 617798
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Slide1
Aims for today
Explore what is meant by the term ‘Cash flow’ Discuss the role and importance of cash in a business Recognise the difference between a cash flow forecast and a cash flow statement Appreciate how careful planning can minimise risk Slide2
Cash and cash flow
Cash is vital to a businesses success and includes notes, coins and money in the bank.Cash flow is: The flow of money into and out of a businessSlide3
Cash inflows
Cash Inflows are the cash coming into a business
Cash inflows
Cash from the individual
Loan from the bank
Cash from salesSlide4
Cash
outflows
Cash
out
flows is the cash
going out of
a business (the payments it makes to others)
Cash outflows
Wages & training
Telephone, gas, electric & other bills
Equipment & Stock
Maintenance & repairs
Advertising
Interest on loansSlide5
Cash flow example
Think about Nestles new Milkybar Moments... yummmmmmm... In your groups, make a list of the all the cash inflows and cash outflows that Nestle may have.Best answers MAY get a taster...Slide6
Net cash Flow
Net cash flow is the money left over when a business takes its outflows from its inflows.In other words, NET CASH FLOW IS:the receipts of a business minus its paymentsExample: If Nestle have £30,000 per month coming in and pay out £10,000 in costs, their NET CASH FLOW is £20,000.Slide7
The importance of cash
Why is cash important in a business?Cash flow is essential to prevent a business becoming INSOLVENT. Insolvency is when a business can no longer pay its debts.Can you think of any recent examples?Slide8
Companies that no longer exist...
MFI Royal Doulton (Waterford Wedgewood)
Zavvi
Entertainment
HBOS Bank
– but rescued by government
Adams
(children's clothing retailers)
Barratts
and Priceless
(shoe shop chain) Slide9
Companies that no longer exist...
Viyella (clothing business)Passion for Perfume (retail chain)Land of Leather (furniture)
Newcastle Productions
(distributor of Findus foods)
Blooming Marvellous
, (maternity-wear retailer)
XL AirlinesSlide10
And of course...WoolworthsSlide11
Joes Bar – Debt Management
http://clipbank/espresso/clipbank/servlet/link?macro=setresource&template=vid&databaseType=cms&resourceID=33&taxonomyNodeID=5423 minsSlide12
Cash Flow Forecasts
The cash flow forecast allows businesses to plan their finances. It is a prediction of the money that will come into and out of the business.They use them to:
See how well they should be performing
To see if action needs to be taken to avoid a cash crisis
Help them apply for/secure loans from the bankSlide13
Over optimistic forecasting
Businesses are sometimes over optimistic when forecasting their cash flow. What impact could this have? Essentially, they could end up spending money they don’t have because they think they will make it back in the future (according to their forecast). Forecasts need to be done CAUTIOUSLY. Slide14
Cash flow forecast for Floral Events
The OPENING BALANCE is: The cash balance at the start of the monthThe NET CASH FLOW is added to the opening balance to get the CLOSING BALANCE. The
CLOSING BALANCE
will become the opening balance for the next month
Lets look at the example...Slide15
Floral Events
£
January
February
March
April
May
June
Receipts
2,400
2,400
3,000
3,4004,500
5,00Payments2,200
2,500
3,400
4,000
4,2004,200Net cash flow200
-100-400
-600300800
Opening balance0200
100-300-900
-600Closing Balance
200100
-300-900
-600200Slide16
Cumulative cash flow
The CLOSING BALANCE shows the CUMULATIVE CASH FLOW Cumulative cash is the build up of cash in a firms bank accountSlide17
Task
Look at the Floral Events Case study p77.Does the company have a cash flow problem?If so, what action can Holly take to overcome this?Slide18
Cash flow problems
What affects cash flow? Slide19
Factors affecting cash flowSlide20
Sales can change
Costs can changeCredit terms can changeStock levels can changeFactors affecting cash flowSlide21
Negative cash flow
In the case study, Floral Events had NEGATIVE CASH FLOWS in March, April and May. Negative cash flow is also known as being ‘IN THE RED
’
. It happens when a businesses
OUTFLOWS
are greater than its
INFLOWS
. Slide22
Cash Flow Exercise
The table on the next slide shows a cash forecast for a new nightclub started with £250,000 of CAPITAL. The forecast is based on some key points:Building work will be finished by September so customers can come in October.A launch party will bring the customers and publicity needed for success.Costs will be as predicted so the company will not have to dip into their
OVERDRAFT
facility. Slide23
Club Woo Woo
Figures in£0000’sAug
Sept
Oct
Nov
Dec
Jan
Cash at start
250
651020
2555
Cash in0
08565115
55Cash out185
55
75
60
8560Net monthly cash(185)(55)105
30(5)Cumulative cash
651020
255550Slide24
Answer the questions
Give 2 benefits of cash flow forecasting for a new, small firm. (2)2. Using the table; explain briefly 2 reasons why the firms cash flow has fallen from £250,000 in August to £10,000 by September. (4)
Explain the likely effect on the firms cash position if the building work was not completed until November. (4)Slide25
The importance of planning
Planning will help businesses to avoid cash flow problems. A strategy to avoid problems is GET ITGet the help/support of banks/investorsE – Ensure market research is thoroughT –Thoughtful cash flow planning will helpI – investigate where you get help spreading payments more evenly
T – Track the ACTUAL cash flow against the FORECAST
G E
T
I
TSlide26
Now for a game...
Cash flow drag & drop and cash flow modelhttp://www.businessstudiesonline.co.uk/live/index.php?option=com_content&view=article&id=2:edexcelgcse-activities&catid=3:gcse-business-activities&Itemid=5Slide27
Homework – Due Thurs 3
rd DecAnswer ALL the questions on page 79 Pocketbook Revision: pages 51-54 & 56-58
Mr
Elephante
says
“Don’t forget to
remember
to:Use FULL sentences Use FULL STOPS at the end of your sentences Use CAPITAL letters at the beginning of sentences and for the names of people & places. Date and title your homework Slide28
Topic 1.3
Chapter 16 The Business Plan
Page 80-81Slide29
The Business Plan
A business plan is a detailed development plan for a business. It includes information about the company’s:LocationOwnershipProducts/servicesResourcesProduction methodsMarketingFinancial detailsIt is usually completed on a 2-5 year basis Slide30
Group Task
In your groups decide on a company that you will start up.Using the example, draw up a business plan and include a cash flow forecast.Next week you will deliver a presentation to a very important panel (the bankers, who will decide whether or not to give you a loan).
You must be able to justify your business plan details, decisions and forecasts. You should dress appropriately. Slide31
The Business Plan
The plan must include:Section 1: The business ideaSection 2: Resources and quality issuesSection 3: Financial resources
Section 4: Feasibility and evaluationSlide32
Quick Quiz
What is the opening balance?What is the closing balance?What does the Net cash flow mean?What is the cumulative cash flow?