ch 30 finance

What is the most important financial factor for a business?

Having enough cash available to pay obligations.

Why can a business fail despite high revenue?

Insufficient cash flow to meet immediate expenses.

What happens if a business cannot pay its debts?

It may become insolvent, leading to bankruptcy.

What is a cash flow forecast?

Estimates future cash inflows and outflows.

Why is cash flow planning crucial for new businesses?

They face shorter credit terms from suppliers.

What do banks require before lending to a business?

A detailed cash flow forecast with clear assumptions.

What are cash inflows?

Money received by the business.

What are cash outflows?

Money paid out by the business.

How do trade receivables affect cash flow forecasting?

They are harder to predict due to payment uncertainties.

What is the net cash flow formula?

Cash Inflows minus Cash Outflows.

What does a negative closing balance indicate?

The business may need a bank overdraft.

What can businesses do to manage negative net cash flow?

Reduce costs and improve credit control.

What are common causes of cash flow problems?

Lack of planning and poor credit control.

How can unexpected events impact cash flow?

They can make forecasts inaccurate.

What is the implication of overtrading?

Rapid growth can lead to cash shortages.

What is a key limitation of cash flow forecasting?

Forecasts can be inaccurate due to poor estimates.