Cash Flow for Finance

Cash Flow is the movement of money in and out of a business. Cash flows out of the business in the form of costs, e.g. wages, suppliers being paid and interest payments on loans. Cash flows into the business as revenue from money received from selling products or services. The Net cash flow is the difference between money in and money out. Costs can alter, e.g. price of raw materials rising. Wages are favourable costs as the workforce can change its size while additional shifts and overtime can also be added. Other costs are fixed costs, they stay the same regardless of the products being produced, e.g. monthly rates or the business rates. Knowing these costs helps forecast cash flow accurately. There must always be cash in place for suppliers and workers. 

There can be losses when the revenue from sales doesn’t cover the cost of production. As a company grows, it’s a good idea to try to save profits so they can be used to get the business through tougher times and save the business from insufficiency. Otherwise, the options may be cutting costs and reducing wages. The business could increase revenue by cutting prices and selling more products or by introducing new product lines or services. 

Once the session is completed, you will be able to identify cash flow and its three categories, establish awareness of the cash flow position and how it might change and adopt strategies to accommodate any changes in cash flow. 

Learning Objectives 

●    Identify cash flow and its three categories.

●    Establish awareness of the cash flow position and how it might change; and

●    Adopt strategies to accommodate any changes in cash flow.