Improving Cash Flow and Profits

Flashcards about improving cash flow and profits.

Cash Flow

The movement of cash into and out of a business.

Overtrading

Expanding too quickly without sufficient funds, leading to cash flow issues.

Poor Credit Control

Allowing customers long payment terms, delaying cash inflow.

Destocking

Selling off goods in a firm’s warehouse to reduce storage costs and bring in sales revenue.

Ways of Improving Profits

Managers need to either increase sales revenues or reduce their costs.

Improve Capacity Use

Spread fixed costs over more output for lower average costs per unit.

Eliminate Inefficiencies

Reduce waste and product returns to improve quality.

Eliminate Inefficiencies

Close unprofitable stores or product lines.

Profit

An absolute number e.g. the firm made a profit of £1.4 million in 2018

Profitability

A relative figure that is often expressed as a percentage of revenue e.g. the firm’s profitability rose from 13% to 16% during the past year.

IDENTIFYING A PROBLEM

Problems that might be missed if there is no consistent management of a firm’s cash flow.

Determining the CAUSE OF THE PROBLEM

Undertake potentially lengthy and detailed research into the reason for the cash flow problem.