3.2.4

Cash & Cash Flow 2

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Consequences of Cash Flow Problems

A business having persistent negative cash flows is unlikely to be sustainable. The business will eventually run out of money and will not be able to pay for salaries, rent or raw materials. In the short-term, negative cash flows can cause problems with stakeholders:

Employees

Employees

  • If a firm runs out of cash, it may be unable to pay its employees.
  • If employees are worried about cash, this can have a negative impact on employee motivation and they may leave the firm.
Suppliers

Suppliers

  • If a business runs out of cash, it may not be able to pay its suppliers.
  • This could create a temporary halt (stop) in production. It may also damage the relationship between the business and suppliers.
Creditors

Creditors

  • Creditors are organisations (or people) that have loaned a business money. If a business runs out of cash, it may not be able to repay these loans.
  • If this happens, the business may not be able to get loans (finance) in the future or it may pay a higher interest rate.

Solutions to Cash Flow Problems

Businesses can improve their cash flow by:

Rescheduling cash payments

Rescheduling cash payments

  • A business could delay payment to suppliers via things like trade credits.
  • If a business predicted negative cash flow in February but a positive one in March, it may be able to delay the payment until March.
Overdrafts

Overdrafts

  • Overdrafts allow a business to have a negative current account balance in the short-term.
  • Banks effectively provide “bridging finance” to plug a short-term shortfall (or lack) of cash.
Reducing cash outflows

Reducing cash outflows

  • A business can try to reduce cash outflows if they predict a liquidity problem.
  • Delaying the payment of bills is one way to do this. For example, a business change the payment dates for loans and try to secure trade credits.
  • Forecasts are useful because the earlier a company predicts a cash shortfall, the better they can adjust their cash payments.
Finding new sources of finance

Finding new sources of finance

  • Finding other sources of finance can provide a firm with the money they need to overcome a liquidity problem.
Increasing cash inflows

Increasing cash inflows

  • Increasing sales, chasing customers that owe money and selling assets can all increase cash inflows.
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1

Exploring Business

1.1

Features of Business Organisations

1.1.1Sole Traders & Partnerships1.1.2Private & Public Limited Companies1.1.3Types of Liability & Not-For-Profits1.1.4Purposes of Businesses1.1.5Purposes of Businesses 21.1.6The Different Economic Sectors1.1.7Multinational Companies1.1.8Stakeholders1.1.9Influence of Stakeholders
1.2

Organisation of Businesses

1.2.1Organisational Structure1.2.2Types of Organisational Structures1.2.3Business Aims & Objectives1.2.4Business Aims1.2.5Business Objectives
1.3

Business Environment

1.3.1External Influences1.3.2Political & Legal Change1.3.3Economic Environment1.3.4Social & Technological Environment1.3.5Lifestyle & Technological Environment1.3.6Corporate Social Responsibility1.3.7The Competitive Environment1.3.8Innovation1.3.9Risk & Uncertainty1.3.10Porter's Five Forces1.3.11SWOT Analysis
2

Marketing Campaigns

2.1

Marketing

2.1.1Setting Marketing Objectives2.1.2Customer Needs2.1.3The Market2.1.4Competition & The Market2.1.5Consumer Behaviour2.1.6Market Research2.1.7Forms of Market Research2.1.8Market Segmentation2.1.9Cultural & Social Factors in Marketing2.1.10Promotional Decisions 32.1.11Pricing Strategies
2.2

Marketing Mix

2.2.1Marketing Mix2.2.2Product Life Cycle2.2.3Pricing Decisions & Price Skimming2.2.4Pricing Decisions & Price Penetration2.2.5Promotional Decisions2.2.6Promotional Decisions 22.2.7Promotional Decisions 32.2.8Market Mapping
3

Business Finance

3.1

Sources of Finance

3.1.1Internal Finance3.1.2External Finance3.1.3External Finance 23.1.4Sources of Business Finance
3.2

Financial Planning

3.2.1Revenue3.2.2Costs3.2.3Cash & Cash Flow3.2.4Cash & Cash Flow 23.2.5Break-Even Analysis3.2.6Profits
3.3

Financial Statements

3.3.1Balance Sheets3.3.2Income Statements3.3.3Liquidity
4

International Business

4.1

Globalisation

4.1.1Growing Economies4.1.2Specialisation & Trade
4.2

International Business

4.2.1Internationalisation4.2.2International Trade4.2.3MNCS4.2.4Conditions that Prompt Trade4.2.5Assessment of a Country
4.3

International Economic Environment

4.3.1Globalisation4.3.2Factors Contributing to Globalisation4.3.3Protectionism4.3.4The EU & the WTO4.3.5Trading Blocs
4.4

Factors Affecting International Business

4.4.1Global Competitiveness4.4.2Ethics of Global Business4.4.3Controlling MNCs4.4.4Cultural & Social Factors in Marketing
5

Principles of Management

5.1

Management & Leadership

5.1.1Managers5.1.2Management Theories5.1.3Managing Organisational Culture5.1.4Management Style
5.2

Theories of Motivation

5.2.1Motivating & Engaging Employees5.2.2Taylor's Theory5.2.3Mayo's Theory5.2.4Maslow's Theory5.2.5Herzberg's Theory
5.3

Managing Change

5.3.1Change5.3.2Key Factors in Change5.3.3Scenario Planning5.3.4Managing Change5.3.5Managing Strategic Implementation
6

Business Decision Making

6.1

Business Principles & Practices

6.1.1Influences in External Environments6.1.2Product Decisions6.1.3Competitive Environment6.1.4Corporate Strategy6.1.5Quantitative Sales Forecasting6.1.6Legislation
6.2

Quality Management

6.2.1Importance of Quality6.2.2Measuring Quality6.2.3Total Quality Management6.2.4Evaluating TQM
6.3

Human Resources

6.3.1Contracts6.3.2Recruitment6.3.3Training a Workforce
6.4

Documents & Business Decisions

6.4.1Sales Forecasts6.4.2Managing Strategic Implementation6.4.3Problems with Strategy

Practice questions on Cash & Cash Flow 2

Can you answer these? Test yourself with free interactive practice on Seneca — used by over 10 million students.

  1. 1
    If a company runs out of cash, who might they be unable to pay?Fill in the list
  2. 2
    What do we call organisations that loan businesses money?Multiple choice
  3. 3
    Which of these is not a way businesses can improve their cash flow?Multiple choice
  4. 4
    How can businesses improve their cash flow?Fill in the list
  5. 5
    Which of the following will not increase cash inflows?Multiple choice
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Cash & Cash Flow

Break-Even Analysis