Cash Flow
What is meant by cash flow?
Well a business needs cash to be profitable, so one must make sure that the flow of cash doesn't dry up. So, it's essential to keep abreast of the current financial situation of your business at all times.
What are overheads?
The term 'overheads' relates to items that cost the business money but which are essential for its operation, for example rent, rates, light, heating, that sort of thing.
What is the difference between fixed assets and current assets?
Assets are things that a business owns and are divided into two categories. Fixed assets are things like land and buildings, machinery and motor vehicles, but current assets are things like debtors, which may sound surprising. A debtor owes you money, and money is an asset. The value of the stock you hold; that's an asset. As also, the cash at the bank and cash in hand.
What are long term and current liabilities?
Liabilities are what you, or that is to say your business, owes to other people. Long term liabilities are those that take a long time to pay off, like your bank loan. Current liabilities are things like overdrafts, wages and salaries, and creditors, people you owe money to, that type of thing.
What is meant by working capital?
Working capital is the value of your current assists minus your current liabilities. Now, a business should never be short of working capital, which should be sufficient to finance the running the business. The lack of working capital is a very common reason for business failure.
What is a cash flow forecast?
A cash flow forecast is the educated estimate of the income and expenditure of the business over a given period, against the estimated income and outgoings of the business over the same period. It's not sometime you can do until after you've been going for a while, until you've got your actual figures in fact. But then, you'll find this a very useful business tool.
What should I include in a cash flow forecast?
When the time comes, show the anticipated income for your business derived from sales and other sources; budgeted figures for anticipated outgoings, such as light, heat, electricity all those overheads I mentioned earlier. Leave a space next to each item for including the actual figures as they are calculated. The difference between the budgeted figures and the actual figures will give you a plus or minus balance, which will indicate the current financial state of the business and enable you to take any remedial action.
