==== ==== ==== Notes on the Cash Budget: Opening Balance - The money that the organisation has at the start of the time period Receipts - Both cash sales and credit sales are recorded Receipts Opening balance minus receipts – Payments - All individual expenses involving the movements of cash are recorded Payments - The estimated total amount that will be spent during the month Closing Balance - total income for the period minus total expenses for the period leaving a surplus or deficit. The closing balance of one time period becomes the opening balance for the next time period. Reasons for poor cash flow Spending too much on inventory Giving customers too long to pay money that has not sold. that they owe. Not receiving enough money from the Not having enough time to pay bills from sale of goods and/or services. their suppliers. Owners taking too much money out of Bad management decisions eg high the business for personal use marketing spend that doesn’t generate (drawings). sales. Solutions to improve cash flow Reconsider expenses can anything be cut Spread cost of equity purchases by – back? Eg are all employees required, find a purchasing through hire purchase or by cheaper supplier/supplier who will give a leasing equipment. discount. Increase sales revenue by increasing selling Inform the bank of any shortage and price or carrying out additional advertising organise an overdraft in advance. to increase amount sold. Offer discounts to customers who pay Sell equipment or machinery no longer on time as this will encourage them to needed as this will in cash to be pay more quickly. used to fund other areas of the business. Obtain additional finance eg a loan. Obtain trade credit from supplier. Reduce level of trade credit given to Raise extra equity by investing retained customers. profits or issuing new shares.
==== ==== ==== Notes on the Cash Budget: Opening Balance - The money that the organisation has at the start of the time period Receipts - Both cash sales and credit sales are recorded Receipts – Opening balance minus receipts Payments - All individual expenses involving the movements of cash are recorded Payments - The estimated total amount that will be spent during the month Closing Balance - total income for the period minus total expenses for the period leaving a surplus or deficit. The closing balance of one time period becomes the opening balance for the next time period. Reasons for poor cash flow Spending too much on inventory that has not sold. Giving customers too long to pay money that they owe. Not receiving enough money from the sale of goods and/or services. Not having enough time to pay bills from their suppliers. Owners taking too much money out of the business for personal use (drawings). Bad management decisions eg high marketing spend that doesn’t generate sales. Solutions to improve cash flow Reconsider expenses – can anything be cut back? Eg are all employees required, find a cheaper supplier/supplier who will give a discount. Spread cost of equity purchases by purchasing through hire purchase or by leasing equipment. Increase sales revenue by increasing selling price or carrying out additional advertising to increase amount sold. Inform the bank of any shortage and organise an overdraft in advance. Offer discounts to customers who pay on time as this will encourage them to pay more quickly. Sell equipment or machinery no longer needed as this will in cash to be used to fund other areas of the business. Obtain additional finance eg a loan. Obtain trade credit from supplier. Reduce level of trade credit given to customers. Raise extra equity by investing retained profits or issuing new shares.
Notes-for-People-and-Finance.docx