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OCR GCSE Business: Cash Flow Management

Author Zak  |  Date 2024-10-26 06:00:03  |  Category Business
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OCR GCSE Business: Cash Flow Management

What is Cash Flow?

Cash flow refers to the movement of money into and out of a business. It's the lifeblood of any company, ensuring it can meet its financial obligations and grow.

Inflows: Money coming into the business (e.g., sales revenue, loan repayments).

Outflows: Money leaving the business (e.g., paying suppliers, wages, rent).

Why is Cash Flow Management Crucial?

Cash Flow Forecasts: Predicting the Future

A cash flow forecast is a prediction of the expected cash inflows and outflows over a specific period, usually monthly or quarterly. It's an essential tool for:

Steps to Creating a Cash Flow Forecast:

  1. Estimate Inflows: Project sales revenue, loan repayments, and other expected cash receipts.
  2. Estimate Outflows: Foresee costs associated with raw materials, wages, rent, loan repayments, and other expenses.
  3. Calculate Net Cash Flow: Subtract total outflows from total inflows.
  4. Analyze: Identify periods of potential cash shortages or surpluses.

Strategies for Improving Cash Flow:

Conclusion

Cash flow management is a critical aspect of successful business operation. By understanding cash flow dynamics, creating accurate forecasts, and implementing effective strategies, businesses can maintain liquidity, ensure operational stability, and achieve their financial goals.