Business Unit 5 M2

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Cash Inflows Income from sales: The money earned from selling goods and services creates an inflow of cash to the business. This is often called sales revenue or turnover. Loans from banks: it is common for a new business to borrow money in order to buy new items such as vehicles, machinery or property. When the loan is given to the business, this becomes a cash flow for the business. Money invested by the business’ owners: When a business is first started, its owners (sole traders or shareholders, for example) may invest money into the business, resulting in a cash flow. Cash Inflows Establishing the business: Starting a new business requires a number of one-off payments, such as advertising the new business and buying equipment…show more content…
They can compare their cash flow forecast with the actual situation shown in the statement. If you look back at their forecast on page 71, you will see the received more cash inflows in December than they expected - £16,700 rather than £16,300. Their cash outflows were just a little higher (mainly due to spending more on wages than forecast). As a result, their cash outflows for the month were only £20 higher than their inflows. Consequences and solutions to cash flow problems Factor | Why It Causes a Cash Flow Problem | Low profits or (worse) losses | There is a direct link between low profits or losses and cash flow problems. Remember - most loss-making businesses eventually run out of cash | Over-investment in capacity | This happens when a business spends too much on production capacity. Factory equipment which is not being used does not generate revenues – so is often a waste of cash | Too much stock | Holding too much stock ties up cash and there is an increased risk that stocks become obsolete (i.e. it can’t be sold) | Allowing customers too much credit | Customers who buy on credit are called “trade debtors”
Offering credit to customers is a good way to build revenue, but late payment is a common problem and slow-paying customers put a strain on cash flow

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