Cash Flow
Business: Cambridge International GCSE (2027 Exams), topic 5.2.1
Cash Flow
Cash flow is the amount of money that is coming in and out of a business and the timings of these cash transfers.
Definition
- Cash is the money that a business can spend immediately.
- It doesn't include money that a business owes or is owed.
- Cash is vital to keep a business running smoothly.
- Without it, a business cannot pay for daily operations, may lose opportunities, and can even go bankrupt despite being profitable.
- Understanding and managing cash flow is essential for business survival.
Cash inflows
- Cash inflows is the cash coming into the business.
Cash outflows
- Cash outflows is the cash going out of the business.
Net cash flows
- Net cash flows is equal to cash inflows minus cash outflows.
Opening balance
- Opening Balance is the amount of cash that the business starts to trade with.
- A negative net cash flow may not create a liquidity problem if the business has a high opening cash balance.
Closing balance
- Closing balance – the amount of cash that a business finishes trading with.
SweetBakes Cupcakes
- SweetBakes Cupcakes is a small business run by Aisha, who sells homemade cupcakes in a local town.
- She has regular customers and earns a good profit.
- During one month, several customers delayed their payments, and Aisha invested in new baking equipment.
SweetBakes Cupcakes
- Even though her profit looked strong on paper, she had very little cash left in her bank account.
- When her electricity bill and supplies invoice came due, she could not pay on time.
- She had to borrow money urgently from a friend to cover her costs.
- Even a profitable business can face problems if it doesn’t manage its cash flow carefully.
- Monitoring cash is just as important as making a profit.
Test yourself on Cash Flow
What is closing balance?