PowerPoint Guide The news icon is hyperlinked to a

Transcript:PowerPoint Guide The news icon is hyperlinked to a:
PowerPoint Guide The news icon is hyperlinked to a related article or website. Simply click to access The film icon is hyperlinked to a related clip. Simply click to access The discuss icon indicates suggested points to discuss The calculation icon indicates a calculation task 3.6 Finance 3.6.2 Cash flow Key elements to this topic Calculation and interpretation of cash flow forecasts The importance of cash to a business Cash versus profit Why is cash important to a business? Cash is the lifeblood of a business If a business runs out of cash it will almost certainly fail Few businesses have access to unlimited finance – cash is restricted, so it needs to be managed carefully Why is cash important? To pay suppliers, overheads and employees Why is cash important? To prevent business failure Difference between cash and profit Cash versus profit Profit is recorded when a sale is made, whereas cash is recorded when it is received. This means that a business selling on credit can be making a profit despite having no cash. Profit is affected only by running costs, whereas cash is affected by start up, running and expansion costs. This means that when a business buys fixed assets (items of value which are held in the business for over a year) cash is affected, but profit isn’t. For example… What is cash flow? Cash flow is the process of cash flowing in and out of a business i.e. cash inflows and outflows Net cash flow Net cash flow is the difference between cash inflows and cash outflows over a trading period Cupcake cash flow The Cupcake Cavern is a small bakery and café specialising in cupcakes and pastries. On the following slide, identify its cash inflows (money flowing into the business) and cash outflows (money flowing out of the business). Cash inflow or cash outflow? Main types of cash inflow and cash outflow Why is it important to forecast cash flow? Cash is the lifeblood of a business. If a business runs out of cash it will be unable to pay suppliers, overheads and employees and may become insolvent, leading to business failure. A cash flow forecast A cash flow forecast is a table showing predicted opening balances, cash inflows, cash outflows, net cash flows and closing balances over a trading period. Opening and closing balances The opening balance is the value of cash at the