1.3.10

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.
Jump to other topics
1

Investigating Small Business

1.1

Enterprise & Entrepreneurship

1.1.1The Dynamic Nature of Businesses1.1.2Risk & Reward1.1.3The Role of Business Enterprise1.1.4The Role of Business Enterprise 21.1.5The Role of the Entrepreneur1.1.6End of Topic Test - Dynamic Nature of Business1.1.7Grade 9 - Dynamic Nature of Business
1.2

Spotting a Business Opportunity

1.2.1Customer Needs1.2.2Market Research1.2.3Market Segmentation1.2.4The Competitive Environment1.2.5Primary & Secondary Market Research1.2.6End of Topic Test - Business Opportunities1.2.7Application Questions - Business Opportunities1.2.8Exam-Style Questions - Market Segmentation1.2.9Diagnostic Misconceptions - Competition
1.3

Putting a Business Idea into Practice

1.3.1Business Aims1.3.2Business Objectives1.3.3Business Revenues & Costs1.3.4Costs - Calculations1.3.5Revenue - Calculations1.3.6Business Profits & Break-Even Analysis1.3.7Profits & Losses - Calculations1.3.8Interest - Calculations1.3.9Cash & Cash Flow1.3.10Cash & Cash Flow 21.3.11Cash Flow - Calculations1.3.12Sources of Business Finance1.3.13End of Topic Test - Business in Practice1.3.14Grade 9 - Business in Practice1.3.15Exam-Style Questions - Business in Practice1.3.16Diagnostic Misconceptions - Profit1.3.17Diagnostic Misconceptions - Company vs Business1.3.18Diagnostic Misconceptions - Economies of Scale1.3.19Diagnostic Misconceptions - Cash Flow1.3.20Diagnostic Misconceptions - Break-even1.3.21Diagnostic Misconceptions - Fixed Costs
1.4

Making the Business Effective

1.4.1The Options for Start-Up & Small Businesses1.4.2Limited Liability1.4.3Franchising & Not-For-Profits1.4.4Business Location1.4.5The Marketing Mix1.4.6Business Plans1.4.7End of Topic Test - Effective Business1.4.8Application Questions - Effective Business1.4.9Exam-Style Questions - Business Plans
1.5

Business Stakeholders

1.5.1Business Stakeholders1.5.2Technology & Business1.5.3Legislation & Business1.5.4Legislation & Business 21.5.5The Economy & Business1.5.6External Influences1.5.7End of Topic Test - Business Stakeholders1.5.8Grade 9 - Business Stakeholders1.5.9Diagnostic Misconceptions - Recessions
2

Building a Business

2.1

Growing the Business

2.1.1Business Growth2.1.2Finance2.1.3Changes in Business Aims & Globalisation2.1.4Ethics & Business2.1.5The Environment & Business2.1.6End of Topic Test - Growing a Business2.1.7Application Questions - Growing a Business2.1.8Exam-Style Questions - Business Growth
2.2

Making Marketing Decisions

2.2.1Product2.2.2Product Life Cycle2.2.3Price2.2.4Pricing Methods2.2.5End of Topic Test - Product & Price2.2.6Grade 9 - Product & Price2.2.7Promotion & Advertising2.2.8PR & Sales Promotions2.2.9Sponsorship & Product Placement2.2.10Promotional Mix2.2.11End of Topic Test - Promotion2.2.12Application Questions - Promotion2.2.13Exam-Style Questions - Promotional Mix2.2.14Place & Wholesalers2.2.15Direct to Consumer2.2.16E-commerce & M-commerce2.2.17Diagnostic Misconceptions - Decreasing Price2.2.18Diagnostic Misconceptions - Advertise vs Promote2.2.19Diagnostic Misconceptions - Social Media
2.3

Making Operational Decisions

2.3.1Job Production2.3.2Batch & Flow Production2.3.3Working with Suppliers2.3.4Effective Supply Chains2.3.5Just In Time & Just In Case2.3.6Managing Quality2.3.7Total Quality Management2.3.8The Sales Process2.3.9End of Topic Test - Operational Decisions2.3.10Grade 9 - Operational Decisions2.3.11Exam-Style Questions - Managing Stock2.3.12Diagnostic Misconceptions - JIT vs JIC
2.4

Making Financial Decisions

2.4.1Gross Profit & Net Profit - Definitions2.4.2Gross Profit - Calculations2.4.3Net Profit - Calculations2.4.4Rate of Return2.4.5Rate of Return - Calculations2.4.6Research & Financial Data2.4.7Marketing Data2.4.8Percentage Change - Calculations
2.5

Making Human Resource Decisions

2.5.1Organisational Structures2.5.2Organisational Structures 22.5.3Recruitment2.5.4Effective Recruitment2.5.5Training a Workforce2.5.6Motivating a Workforce2.5.7End of Topic Tests - Human Resources2.5.8Application Questions - Human Resources2.5.9Exam-Style Questions - Human Resources2.5.10Diagnostic Misconceptions - Owners vs Shareholders2.5.11Diagnostic Misconceptions - Internal Recruitment2.5.12Diagnostic Misconceptions - Employee Motivation

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

Cash Flow - Calculations